Sustainability Risks

In addition to the amber risks set out above, Vonovia also reports on selected green risks that relate explicitly to sustainability in order to reflect the growing importance of this risk consideration:

Environmental Risks

The need to consider climate-related aspects is playing an increasingly important role in Vonovia’s business model and strategy, in line with the mounting importance of climate issues in society at large. The resulting climate transition risks describe the effects that can arise for companies due to the process of transformation towards a sustainable economic system. Vonovia has set itself an intensity target equating to a roughly 35% reduction in GHG emissions in its German portfolio by 2030 compared to 2021, in order to achieve its climate objectives and meet the associated regulatory requirements. We are sticking to this climate target despite limited investments in modernization and new construction over the coming year. As a result, we continue to consider the risk of non-compliance with our climate path to be associated with a low amount of loss and consider its materialization to be improbable.

In addition, crises or disasters such as floods, earthquakes, extreme weather events, etc., could have an impact on our real estate portfolio and require specific crisis management measures. Physical climate risks like these refer to longer-term shifts in general climatic conditions. We have assessed the risk of business continuity in disasters/crisis situations as being associated with an amount of loss of € 5–40 million and a probability of occurrence of 5–39%. To allow us to analyze and assess potential long-term implications of climate change (i.e., those extending beyond the usual risk management observation period of five years), we have developed a climate risk tool that maps the internationally recognized climate change scenarios developed by the Intergovernmental Panel on Climate Change (IPCC).

Transition risks and physical climate risks could potentially have a negative impact on the Group’s net assets, financial position and results of operations and could make the estimates used in an accounting context less certain. We do not believe that climate change gives rise to any significant direct risks for the period covered by the risk management system at the moment, e.g., caused by extreme weather conditions such as heavy rain with the potential for floods. Based on our current knowledge of future developments, this will not have any impact on Vonovia’s balance sheet. This relates, among other things, to the fair values of investment properties, useful lives and the value of assets and provisions for environmental risks, for which no significant need for adjustment emerges (see Environmental Issues). 

When it comes to the development of new and sustainable fields of business in the Value-add segment – particularly with regard to renewable energies – risks can arise from the design and implementation of the business models. Procurement prices can also develop differently than expected. At present, we have assigned this procurement price risk in our energy services area a low amount of loss of € 40–150 million and a probability of occurrence of <5%. With regard to the planned expansion of renewable energies using photovoltaic systems, we have assessed the related risks as having a low amount of loss and a probability of occurrence of 5–39%.

Social Risks

Breaches of provisions concerning special contractual rights (Social Charters) can come hand-in-hand with risks related to tenant protection and, as a result, the aim of providing “homes at fair prices”. While we have assigned a significant amount of loss of € 150–375 million to these risks, we consider them very unlikely to materialize.

Failure to comply with statutory occupational health and safety and occupational safety management provisions could have a long-term impact for Vonovia and its employees. We currently assess these risks as being associated with a substantial amount of loss but believe that they are very unlikely to materialize.

Governance Risks

Vonovia is exposed to the risk of losing sustainable financing. Sustainable “green” financing is becoming increasingly relevant. Failure by Vonovia to meet its sustainability targets, for example, could jeopardize the basis for this financing. At present, we have assigned this risk an amount of loss of € 375–750 million and a probability of occurrence of <5%.

In addition, Vonovia could be exposed to risks associated with non-compliance with statutory requirements and investor or analyst expectations regarding ongoing sustainability reporting. We currently assess this risk as being associated with a substantial amount of loss, but believe that it is very unlikely to materialize.

Inspections and reviews of buildings with regard to public safety are conducted based on a defined inspection plan and dedicated safety standards. If shortcomings are identified, there is a risk of unplanned refurbishment expenses and/or replacement investments. We have assessed the risk of non-compliance with operator obligations as being associated with an amount of loss of € 5–40 million and a probability of occurrence of <5%.