Reviewing Taxonomy-eligible Economic Activities for Taxonomy Alignment
The taxonomy alignment of activities is reviewed at a number of different levels. As a general rule, substantial contribution to climate change mitigation is evaluated at the level of the respective asset, e.g., the respective rental, modernization or construction project. This does not include economic activities that can generally be assumed to make a substantial contribution to climate change mitigation without meeting specific criteria.
Compliance with the “do no significant harm” criteria is generally assessed at activity level, insofar as fundamental aspects of the business activity are subject to investigation, e.g., compliance with statutory law. Compliance with the “do no significant harm” criterion for EU environmental objective 2 “Climate change adaptation” was analyzed for the Group portfolio to assess the activity for any substantial negative impact. At Vonovia, the minimum social safeguards are also implemented at group level.
The EU Taxonomy Regulation and the corresponding delegated acts contain wording and provisions which, even taking into account the supplementary publications issued by the EU Commission, are subject to interpretation and for which clarifications have not yet been published in every case. As such, some of the discretionary decisions made here are based on the ways in which Vonovia has chosen to interpret the EU taxonomy.
Review of an Economic Activity’s Substantial Contribution to the Achievement of One or More EU Environmental Objectives (“Substantial Contribution”)
In the following, we explain how we assess compliance with the technical screening criteria relevant to us in the construction, residential property and energy sectors with regard to EU environmental objective 1.
In accordance with Vonovia’s business model, the relevant screening criteria for determining taxonomy-aligned turnover stem from activities 7.1, 7.7 and 4.1:
Turnover associated with new construction (activity 7.1) is deemed taxonomy-aligned if the relevant buildings have a primary energy demand that is at least ten percent below the national standard for nearly zero-energy buildings. This is defined differently depending on the EU member state. In Germany, it is set out in the German Buildings Energy Act (GEG). The relevant buildings undergo the thermal integrity and airtightness test. These tests are carried out if either the buildings have a space of > 5,000 sqm or they are required as part of the energy performance certificate. Where required to do so, Vonovia determines the global warming potential for each phase of the building life cycle (for buildings with a space of > 5,000 sqm) using a model calculation of life cycle emissions based on emission factors that have been determined for different types of construction.
Turnover generated from the acquisition and ownership of buildings (activity 7.7) is deemed taxonomy-aligned if the relevant buildings, provided they were constructed before December 31, 2020, have been assigned energy efficiency class A (or better) or are among the top 15 percent of regional or national housing stock in terms of primary energy demand in operation. For buildings constructed after December 31, 2020, the same criteria for significant contribution to climate protection apply as for new construction (activity 7.1).
Vonovia checks compliance with the relevant threshold values by obtaining an energy performance certificate for each building. We base our assessment of the top 15 percent on relevant threshold values for primary energy demand for Germany, Austria and Sweden, which were determined by external experts in a recent benchmark study. If proof of consumption is available, primary energy consumption is applied in the same way as primary energy demand. Further information on the calculation is publicly available and can be found in the requirement criteria of the Vonovia Sustainable Finance Framework.
Turnover from electricity generation using solar photovoltaic technology (activity 4.1) is treated as a direct climate change mitigation measure in the EU Taxonomy Regulation, meaning that no additional technical criterion needs to be assessed.
In accordance with Vonovia’s business model, the relevant criteria for determining taxonomy-aligned capital expenditure stem from activities 7.2, 7.3, 7.4, 7.5, 7.6 and 7.7:
At Vonovia, capital expenditure associated with the renovation of existing buildings (activity 7.2) always relates to energy-efficient modernization. This makes a substantial contribution to climate change mitigation if the renovation results in at least a 30 percent reduction in primary energy demand within three years or qualifies as a major renovation. In Germany, Vonovia checks compliance with this criterion through energy-efficiency assessments, which are carried out prior to each renovation and determine the savings potential. If these are not available, the savings are documented by the energy performance certificates. This applies to all countries. Capital expenditure as part of energy-efficient modernization projects is allocated to activity 7.2. Where it relates to individual investment measures such as heating modernization or window replacement, the capital expenditure is assigned to activity 7.3.
Capital expenditure on heating modernization, charging stations and wall boxes, measurement technology and smart metering, and photovoltaic systems is generally treated as a direct climate protection measure, meaning that no additional technical criteria need to be assessed. These measures are allocated to the following activities 7.3, 7.4, 7.5, and 7.6.
Activity 7.7 “Acquisition and ownership of buildings” also includes capital expenditure from acquisitions, development to hold, investments not including energy efficiency measures (e.g., refurbishment of vacant apartments or major maintenance measures) or other internal expenses that can be capitalized. These qualify as taxonomy-aligned if the building-related technical valuation criteria are met.
In accordance with Vonovia’s business model, the relevant criteria for determining taxonomy-aligned operating expenses stem from activity 7.7. This is non-capitalized maintenance (usually minor maintenance). In addition to maintenance services provided by third parties, this also includes services provided internally by the company’s own craftsmen’s organization.
Assessing Significant Harm of an Economic Activity on One or Several EU Environmental Objectives (“Do No Significant Harm”)
In the following, we explain which “do no significant harm” criteria apply to our economic activities that have been identified as taxonomy-eligible and how we meet these criteria. Generally the criteria are EU regulations or directives that have been transposed into national law in Germany, Austria and Sweden.
In order to avoid significantly compromising adaptation to the effects of climate change (EU environmental objective 2), the EU taxonomy requires that a robust climate risk and vulnerability assessment be carried out for all taxonomy-aligned economic activities. Vonovia uses an IT tool to identify and evaluate physical climate risks for the Group-wide portfolio on a continuous basis using the prescribed climate scenarios (RCP2.6, RCP4.5 and RCP8.5) (see Environmental issues). The risk assessment is based on scenario RCP4.5, which, according to the United Nations (UNEP Emissions Gap Report 2022), represents the probable increase in the global average temperature that will result from the national contributions to climate change mitigation that have currently been defined and implemented. In this scenario, no material risk has been identified for any of the climate-related hazards up to 2045. Therefore, no adaptation plan is required in accordance with the EU Taxonomy Regulation. As part of the neighborhood strategy, potential adaptations are to be defined at portfolio level in the future and subsequently implemented individually for the properties or neighborhoods for which there are material risks at the corresponding level.
With regard to the sustainable use and protection of water and marine resources (EU environmental objective 3), no criteria need to be assessed for the taxonomy-eligible economic activities, as these do not apply to residential building units. At Vonovia, the review of taxonomy alignment is limited to residential building units.
The requirements for the recycling and reuse of non-hazardous construction and demolition waste generated by new construction and renovation work for transitioning to a circular economy (EU environmental objective 4) are met through the implementation of the German Circular Economy Act (KrWG) or by means of other national legislation. The photovoltaic systems installed by Vonovia also meet the requirements for preventing significant harm to EU environmental objective 4 on account of their design and service life.
In order to avoid and prevent environmental pollution (EU environmental objective 5), compliance with certain EU directives must be ensured (listed in Appendix C to Annex 1 to the Supplement to EU Regulation 2020/852). This is regulated by law in Germany, Austria and Sweden. Vonovia only purchases and uses finished construction products that are approved within the EU, bear the CE mark, meaning that they have an EU declaration of conformity, which is consistent with the applicable EU legislation. Compliance with statutory requirements is defined in Vonovia’s Business Partner Code that all subcontractors and suppliers have to sign. Vonovia has established a toxic materials management system to ensure the safe handling of toxic materials. Among other measures, safety fact sheets and operating instructions are kept for affected products and the company’s own employees are trained on how to handle these products correctly from an occupational safety perspective. Given the shortage of housing, new construction is crucially important for society. The same applies to energy-efficient building refurbishment, as well as to the installation, maintenance and repair of energy-efficient systems. These measures to decarbonize the real estate portfolio and to continually improve energy efficiency help, for example, to save heating costs, taking pressure off tenants and at the same time improving the quality of housing and life for society.
Vonovia’s economic activities do not significantly harm the achievement of EU environmental objective 6 (protection and restoration of biodiversity and ecosystems), as Vonovia only builds in designated areas. Relevant aspects are taken into account by the competent authorities in the approval procedures preceding such activities.
Compliance with Minimum Standards at Group Level (“Minimum Social Safeguards”)
We are committed to our human rights due diligence obligations and align our conduct with internationally recognized frameworks such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
Vonovia adopts a Group-wide approach to meeting minimum safeguards: comprehensive procedures forming part of the compliance management system, including Group-wide guidelines and complaints mechanisms, have been put in place to prevent and uncover violations (see Combating Corruption and Bribery).
Accordingly, the findings from the investigations conducted by the public prosecutor’s office that have been disclosed were taken into account for the calculation of the taxonomy-aligned key figures. In doing so, the performance indicators for economic activities 7.3 and 7.7 were slightly reduced by the estimated share of turnover or capital expenditure and operating expenses in connection with increased services in the Technical Building Services business area which are the subject of the investigation proceedings.
A due diligence process to prevent business activities negatively impacting people and the environment forms the core element of compliance with minimum safeguards. Vonovia implements this process based on the OECD guidelines and has implemented all recommended due diligence steps: integrating human rights due diligence into strategy and processes and adopting a declaration of commitment, performing a regular risk analysis to identify and assess potentially negative impacts in consultation with stakeholders, implementing measures to end, prevent, mitigate and correct any failings in this regard, including monitoring such measures and reviewing their effectiveness, and communicating with the public regarding the approach taken and the measures implemented in order to fulfill human rights due diligence obligations. More information on the implementation of human rights due diligence at Vonovia can be found in the section entitled Respect for Human Rights.