European ESG Regulation

Taxonomy Regulation:

As of the beginning of 2022, climate change mitigation and adaptation, objectives one and two of Regulation 2020/852/EU of the European Parliament and of the Council of 18 June 2020 establishing a framework to facilitate sustainable investment and amending Regulation 2019/2088/EU (the "Taxonomy Regulation") are in force.

As of January 1st, 2023, the following four additional targets will be added to the existing environmental targets:

• Transition to a circular economy (goal three);
• Pollution prevention and control (goal four);
• Protection of water and marine resources (goal five); and
• Protection of biodiversity and ecosystems (goal six).

One criticism is that the legislature has not yet provided the technical standards for goals three to six, so it is not possible to assess how real estate funds can actually promote environmental goals as defined by the taxonomy.

Disclosure Regulation:

Regulation 2019/2088/EU of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosure requirements in the financial services sector (the "Disclosure Regulation" or "SFDR") came into force in March 2021.

Now the so-called "Level 2 Regulation" is added, which further specifies the original Disclosure Regulation.

The core of the Level 2 Regulation is that for the disclosure of Article 8 and Article 9 funds, the pre-contractual information must be adapted and quantifiable information on the achievement of the set targets must be provided in annual reports.

In addition, the negative impact of investment decisions on sustainability factors - so-called "Principle Adverse Impact" ("PAI") indicators - must also be recorded for non-sustainable funds, which must be published on the AIFM’s website.

As of January 1, 2023, the following new metrics must be reported for real estate:

• Energy efficiency;
• Fossil fuel storage;
• Energy consumption intensity.