Danish and European climate requirements. What should your company live up to in 2022?
The past year has been hectic for the real estate and construction industry in Denmark, but also for the rest of the EU
The past year has been hectic for the real estate and construction industry in Denmark, but also for the rest of the EU. This is due to a large number of new legislation in the fight to support the restructuring of the construction and real estate sector so that it is ready for the sustainable and green age. This means increased pressure for renovation and digitization of the existing building stock, which must both ensure a reduced emission of CO2 equivalents (CO2e) from buildings, at the same time as legislators nationally and at EU level try to bring greenwashing to life through increased documentation requirements, for green marketing and the like.
As this is a huge maneuver and a definite paradigm shift, these measures include a substantial amount of national and EU legislation, delegated acts, etc., but what does this mean for you as a real estate investor or administrator in the near future?, and what steps should you prioritize first?
We give you an overview of upcoming regulation in 2022, so it will be easier for you to prioritize your interventions.
… but first:
Your company's sustainability impact using Environmental, Social and Governmental (ESG) key figures.
Thus, according to the EU Non-Financial Reporting Directive (NFRD) of 2014, all large companies in accounting class C and all companies in accounting class D must be implemented by section 99 a of the Annual Accounts Act of 2018, i.a. inform about the company's climate impact.
In practice, this means that if your company falls into these accounting classes, as of 1 January 2019, it must, together with the management's report, publish an account of CO2 emissions associated with its activities.
Danish Legislation in 2022
The Energy Order §§ 14-17
From 1 January 2022, information on end customers and end users' actual heating and cooling consumption must be provided on a monthly basis, provided that heat and cooling meters are remotely read. As a property owner and administrator, it is also important to keep in mind that in addition to this monthly consumption information per. 31 December 2020, information must be provided regarding the fuel composition if the property is heated by district heating. In addition, end customers must be informed of the annual emission of greenhouse gases from the energy sources used for heating - but only if the total nominal thermal input is more than 20 MW.
European legislation in 2022
Many have probably heard of the EU Taxonomy Regulation, as well as both the NFRD and the Sustainable Financial Disclosure Regulation (SFDR). To this must be mentioned the future buyer for the NFRD, namely the Commission proposal for the Corporate Sustainability Reporting Directive (CSRD), which the Commission expects to have completed by the summer of 2022.
Taxonomy in particular is notoriously complicated and contains several hundred delegated acts and guidelines, and there will be more delegated acts in 2022.
But what should you as a property owner prioritize first, and what will happen in 2022?
We will provide an overview of this by reviewing which parts of the individual regulations will enter into force in 2022. As the NFRD is from 2014 and fully implemented, and the CSRD is not expected to be completed until 2022, we will not review them. However, it is relevant to mention that CSRD is expected to include all large companies and therefore not only, as it is now, companies with +500 employees. In addition, there will also be rules for sustainable and green marketing for listed non-financial SMEs.
Taxonomy sets the framework for green investments and for how sustainability in a broad sense should be included as part of doing business. Since buildings and construction make up a very large part of total CO2e emissions, Taxonomy sets a set of rules for construction, acquisition and ownership of properties and for what can be assessed as green investments.
That from 1 January 2022, for buildings built before 31 December 2020 (this cut is set to define existing construction), only buildings with Energy Class A (Energy Performance Certificate in English) can be categorized as green investments. Alternatively, those buildings, at the national level or within national regions, that rank among the 15% best performing buildings in terms of greenhouse gas emissions.
This will of course be divided into building type. Whether your properties are within this 15% obviously requires an accurate calculation of your property portfolio's CO2 emissions as well as an index by the Danish Energy Agency that can be used to determine exactly which buildings are part of top 15%.
As a tentative tool, you can use the Danish Energy Agency's statistics on the distribution of Energy Labels.
Sustainable Financial Disclosure Regulation
The entry into force of some of the articles of this Regulation has been postponed, as it has been a major task for the European Securities and Markets Authority (ESMA) to establish a comprehensive set of 13 Regulatory Technical Standards (RTS). This is stated in a press release from the European Commission on 25 November 2021. If you work in a large financial company with more than 500 employees, this means that the company must publish the first Principal Adverse Impact (PAI) declaration by. 30 June 2023. This date has thus been moved two years from what was originally stated in the legal text. This is of crucial importance for large companies, as this statement applies to the financial year 2022, which is why you should already now incorporate due diligence policies in the area of sustainability and their sustainability effect as an integral part of your reporting regime.This should also appear as very specific information on your website.
If you are curious about more or you have even more questions, we would very much like to try to give some answers or try to help you along the way. Feel free to contact us!
Sebastian Stølen-Bosse, Business Developer, Legacy