CO2 Reduction in the Housing Portfolio
Environmental and climate protection play an important role in our sustainability strategy. Our main focus is on the greenhouse gas emissions that we have a direct influence on – Scope 1 emissions (direct emissions group-wide, approx. 45%) and Scope 2 emissions (indirect emissions caused by consumption of district heating and power, approx. 30%) of the properties in our portfolio. We also account for various greenhouse gas emissions in the upstream value chain, including in the upstream chain of the energy sources we use. These and other Scope 3 emissions along with other environmental aspects are becoming increasingly important for our company.
Vonovia has set itself the target of achieving a virtually climate-neutral housing stock by 2045, with carbon intensity of less than 5 kg of CO2 equivalents per m2 of rental area. By 2030, our housing stock in Germany is to have a CO2 intensity of less than 25 kg CO2e/m2. These targets remain unchanged following the merger with Deutsche Wohnen and were confirmed in 2022.
In terms of its weighting, carbon intensity is the most important component of our sustainability performance index (SPI), which is our key non-financial performance indicator. In this context, it is also fully integrated in investment planning and linked to specific targets through the five-year planning. As part of the SPI, it also forms part of the remuneration for the Management Board and the top levels of management.
During the reporting year, we had the Vonovia climate pathway’s compatibility with the Paris Agreement target calculated using the XDC model from right.based on science. The XDC model converts CO2 emissions based on our climate pathway into a number of degrees that shows by how much the earth’s temperature would increase if the entire world's climate performance were identical to that of Vonovia. This calculation reveals that Vonovia’s climate pathway is compatible with global warming of 1.4° Celsius. The 1.5° target path of the Carbon Risk Real Estate Monitor (CRREM) for multifamily residences in Germany (as of 07/2021) was used as a benchmark.
In the 2022 fiscal year, the carbon intensity for our housing stock in Germany was 33.0 kg CO2e/m2 (2021: 38.4 kg CO2e/m2, excluding Deutsche Wohnen). As we switched to using the Carnot method to calculate district heating CO2 emissions in 2022, as announced in the previous year, the values are not entirely comparable. Once adjusted for method, there is a reduction of around 10% compared with the previous year’s figure (CO2 intensity in 2021 taking into account the Carnot method: 35.6 kg CO2e/m2, excluding Deutsche Wohnen). Carbon intensity has therefore already reached the level planned for 2023. In addition to the modernization measures, this can also be attributed to our further improved monitoring, as part of which numerous energy performance certificates were updated and the specific emission values of a major district heating supplier were taken into account.
We expect CO2 reduction to slow down in 2023 in comparison with the previous years. Due to the rise in the cost of construction and changes in interest rates, the focus is more on the implementation of modernization work already begun and in the planning stages. Investments in refurbishment will be down against the previous year. Since we already exceeded our CO2 reductions targets in previous years, this won’t endanger our ability to stick to our climate path. In the future, we aim to return to our long-term refurbishment rate of above 2.5%.
The Group’s climate strategy is coordinated by the Sustainability/Strategy unit, which reports to the Chief Executive Officer. The Portfolio Management unit reports to the Chief Rental Officer (CRO) and is responsible for the general planning and coordination of modernization measures in the German portfolio. Within the unit, the Climate-neutral Portfolio department is tasked with developing solutions for bringing our property portfolio and the corresponding investment strategy in line with our climate action goals.
The properties and neighborhoods to be modernized are selected in a targeted manner in cooperation with the regions, and the right modernization for each building is defined. The investments for the modernization programs are approved by the Management Board.
The Investment department manages the budget for modernizing the portfolio. Vonovia Technical Service (VTS) is responsible for planning and execution. Renewable energy activities – especially the photovoltaic program and energy sales in Germany – are organized by the Value-add division. They are managed by the Chief Transformation Officer. Energy sales, through which our customers can sign green electricity contracts directly with Vonovia, are handled through the company’s own Vonovia Energie Service GmbH (VESG).
Energy efficiency modernization measures in Austria are, like overall business operations in Austria, the responsibility of the Chief Development Officer (CDO) under the BUWOG umbrella, where they are led by the Real Estate Management division. Business operations in Austria are the responsibility of the Chief Development Officer (CDO) and Managing Directors under the umbrella of BUWOG. All sustainability-related measures (for both new construction and the existing portfolio) are developed and managed by the Development and Property Management divisions.
The Division Heads of Victoriahem in Sweden are responsible for planning and installing photovoltaic systems on the roofs of buildings in the company’s portfolio. The Head of the Energy and Environment Department in Sweden and his team support this process by providing technical advice and calculating savings in partnership with the Business Controller. The Head of the Energy Management Team reports to the head of the Real Estate Development Department.
Objectives and Measures
We have three levers for implementing Vonovia’s climate pathway: comprehensive energy-efficient modernization work, increasing the share of renewable energies within neighborhoods and a fundamental transformation of the energy sector.
A new end-to-end process for ensuring efficient cooperation between all departments involved in neighborhood development was defined during the reporting year. The neighborhood advisors provide an interface between the various stakeholders, bundle requirements and information in the context of neighborhood development and act as the link between Vonovia’s internal departments. In the future, this will allow the different neighborhoods to be treated individually, and tailored, economically viable concepts to be developed in terms of a modular system for scalable solutions that focus on linking the heat, electricity and mobility sectors. In doing so, we adopt a holistic view of the neighborhood, examining both the modernization of the building envelope (insulation of facades, basement ceilings and attics, and replacement of windows) and the conversion of the energy supply to climate-friendly systems in their wider context. We believe that many integrated solutions for energy provision with renewable energies and CO2 optimization can only be implemented in a technically feasible and economically viable way within larger neighborhoods.
Energy-related modernization to improve energy efficiency is an essential pillar of our climate pathway. In order to determine the ideal modernization pathway for the portfolio, Vonovia developed the decarbonization tool (DKT), which digitally reconstructs the housing stock and calculates the current and future greenhouse gas emissions of each building. Climate-relevant key figures and energy-technical and economic indicators are fed into the tool. The decarbonization tool defines priorities based on economic efficiency and carbon reduction and so determines the ideal point in time for the modernization of each individual building. Differentiated solutions are identified for all neighborhoods, which are then set out in more specific detail in the development plans for each particular neighborhood. The decarbonization tool received the DENEFF RealGreen Award in the reporting year.
Public-sector subsidy programs are being used for many of the modernization measures in order to minimize the costs for our tenants. Here, federal subsidies for energy-efficient buildings (BEG) play a particularly crucial role. Planning in the real estate sector involves long timescales and is complex in a neighborhood context. The BEG’s subsidy eligibility conditions, which changed multiple times at short notice, made it much more difficult for us to plan in the reporting year. For us to be able to successfully implement our climate pathway, we need reliable framework conditions and predictable subsidy eligibility conditions. While the inclusion of district heating in the CO2 Cost Sharing Act provides an incentive to reduce emissions, it also represents an additional liability for future investment opportunities.
We completed energy-efficiency modernizations in around 6,800 units in Germany in the reporting year, not including heating system upgrades. This equates to a refurbishment rate of 1.9% (excluding Deutsche Wohnen). The year-on-year drop (2021: 2.3%) is, among other things, attributable to the new conditions for subsidies and the adjustments to the internal management system to focus on the neighborhood level, which requires more complex and therefore longer planning. In the year ahead, the refurbishment rate will be between 0.3% and 0.8% due to the challenging interest rate environment, increased construction costs and reduced subsidies.
In order to make energy-efficient building refurbishment even more cost-effective in the medium and long term, we continued to forge ahead with serial refurbishment in the reporting year. In Bochum, a refurbishment project comprising 24 apartments was completed in accordance with the Energiesprong principle. Preparations for further serial refurbishment projects are currently underway. Additionally, Vonovia is undertaking remote digital monitoring of heating systems to ensure optimized operational management and early detection of faults.
With regard to heating modernization, we have begun to ramp up the electrification of heat production against the backdrop of the current situation on the energy markets. We therefore launched a heat pump initiative in the reporting year (see Heat Pumps Task Force). This represents a further step in the implementation of our climate pathway. Our aim here is to further reduce the CO2 intensity of buildings that already have a good energy efficiency standard and cut demand for gas within the portfolio by up to 30%. In Dortmund, a pilot-scale batch of single-energy-source systems will be installed in 50 heating networks with over 100 buildings. Building on the results of this pilot, the initiative is to be rolled out to other regions in 2023.
Another aspect of implementing the climate pathway is increasing energy generation from renewable sources. To achieve this, Vonovia launched a long-term program to expand photovoltaic capacity in 2021. In the reporting year, Vonovia owned 533 photovoltaic systems with an installed output of 19.3 MWp. The 24.4 MWp target was not met due to supply difficulties and delays associated with the network operators.
Overall potential has increased as a result of the merger with Deutsche Wohnen. Our new aim is to continuously increase the additional installed output per year and to achieve an installed output of around 280 MWp by 2030 (compared to 19.3 MWp in 2021). Since 2022, we have focused exclusively on tenant installations, where the electricity generated is used within the neighborhood itself – to supply our tenants and to power heat pumps. The installation of these systems is therefore also closely interlinked with the heat pump initiative and the modernization program.
In order to achieve the targets for PV output, we are also investing in in-house installation capacities and creating about 100 new jobs in total. In 2023, installed output is set to more than double to around 43 MWp. In the long term, we intend to fit all suitable roof spaces in the German portfolio with PV panels by 2050.
The newly formed energy innovation team, which is part of the Innovation & Business Building department, actively works to ensure that climate pathway targets are met by analyzing and testing innovative technologies. Targeted efforts have already been made to scout out new technologies at all stages of the stringent innovation process, which are then assessed for technical feasibility and economic viability with the involvement of relevant stakeholders. Particular focus is given to the testing of innovative generation and storage solutions in the context of decentralized energy supplies. Vonovia is offering its customers the opportunity to purchase electricity from renewable energy sources via its own energy distribution company (VESG). By providing green energy that has been generated or certified in the neighborhood, we are supplying them with cheap electricity and helping them to reduce greenhouse gas emissions. Our objective is to maximize the share of energy we produce ourselves for the benefit of our customers and the environment, and also to use it for our housing-related services, e. g., e-mobility. The purchase of certified green electricity to supply communal areas makes a further contribution to our climate strategy.
Decarbonizing District Heating
A further component of our climate pathway is the supply of sufficient quantities of CO2-free district heating and electricity by the energy sector. This requires that the energy sector implement the targets set by policymakers for phasing out coal and increasing the share of renewable energies in energy or electricity generation. We consider the proposal of the German Federal Ministry for Economic Affairs and Climate Action (BMWK) on municipal heating planning to be an important step towards this goal. This can provide long-term planning security with respect to the availability of district heating within the municipalities. In this regard, adopting an integrated view of heat and electricity generation that takes all stakeholders into account is of particular importance. Wherever it is economically feasible, we are connecting more portfolio properties to the district heating grid, thus consistently advancing the decarbonization of heat generation. During the reporting year, Vonovia therefore examined the decarbonization strategies of the most important district heating providers in depth and, based on these conclusions, drew up potential courses of action for incorporating them into its long-term neighborhood strategy.
Exchanging views about climate protection and CO2 reduction within the sector and beyond is important to us. We do this through, for example, Initiative Wohnen.2050 (IW.2050), where we are one of the founding members. We were also involved with a variety of exchange formats in 2022, and shared our ideas. The aim of IW.2050 is to create a shared understanding of the importance of climate change mitigation and to take a unified approach to combating climate change in the housing industry. A variety of joint guidelines, tools and dialogue formats on strategic and technical issues support this purpose. Other initiatives that we are involved with include the Stiftung KlimaWirtschaft (German CEO Alliance for Climate and Economy) and the Open District Hub (ODH) (see Contribution to Socio-Political Dialogue).
Decarbonization Pathway in Austria and Sweden
In Austria, BUWOG has been a partner of the “klimaaktiv Pakt” climate protection initiative launched by the Austrian Federal Ministry for Climate Action, Environment, Energy, Mobility, Innovation and Technology since 2011. As part of this initiative, BUWOG has defined the goal of achieving a reduction of 55% by 2030 compared to the baseline year of 2005. The highest share of the CO2 reduction will be accounted for by modernization and improvements to existing stocks, particularly energy-efficient refurbishment, improvements in the efficiency of heating systems and conversion to renewable energy sources. Furthermore, all oil heating systems are to be replaced by 2030, five years earlier than required by law. BUWOG has had a certified energy management system that is consistent with ISO 50001 standards in place in Austria since 2013/14 and in Germany since 2018. The system is a tool used voluntarily to systematically manage energy performance and improve it continuously. The corresponding establishment of processes that reflect this policy in the company and clear objectives serve to increase energy efficiency, reduce energy consumption and cut energy costs.
In Sweden, virtually all existing Victoriahem buildings are supplied with district heating, the generation of which already produces extremely low CO₂ emissions. Therefore, the road to climate neutrality will primarily be shaped by further decarbonization of heating supply, coupled with ongoing improvements in energy efficiency. As such, the aim is to reduce energy consumption per m2 by 30% by 2030 compared to 2015. In 2022, Victoriahem also joined the Swedish housing association’s “Allmännyttans klimatinitiativ”, which also aims to achieve a CO2-free energy supply by 2030.