European real estate groups are lobbying EU regulators to amend the Sustainable Financial Disclosure Regulation (SFDR) disclosure obligations so they fit better with real estate.
A working group consisting of the Association of Real Estate Funds (AREF), the European Association for Investors in Non-Listed Real Estate (INREV) and the Investment Property Forum (IPF) have published the SFDR Real Estate Solutions Paper, which aims to support SFDR’s goal of preventing ‘greenwashing’ while avoiding measures which could hamper real estate investment.
INREV, AREF and IPF said SFDR “should be supported in its ambition to accelerate decarbonisation of financial market activities, including the built environment, and to inhibit greenwashing”, but also argued that solutions were needed to solve challenges regarding its application to real estate.
The paper can be found here.
The paper proposes remedies for problem including confusion over definitions in the mandatory principal adverse impact (PAI) requirements, eg the definition of “exposure to fossil fuels” and the definition of “inefficient real estate assets”, which is described as “overly complicated and unworkable”.
It also suggests the mandatory PAI “exposure to energy-inefficient assets” focuses on a “snapshot of the operational sustainability characteristics of the underlying assets, rather than on the ambition for, and progress toward, the transition of such assets”.
The working party believes this will encourage real estate investors to dispose of such assets, rather than improving them. It proposes a change to allow disclosure of a pathway to energy efficiency for such assets.
It also asks that new embodied carbon emissions are considered alongside operational emissions to give a total picture of asset performance. Focusing on operational carbon “has the potential to mis-signal to some investors that new buildings that are close to net zero are more beneficial and deter the rejuvenation of existing buildings,” the paper says.
The paper also points out the Energy Performance Certificates are not in use worldwide, so asset owners with global portfolios need to be able to use alternative measures for assets in other regions.
Melville Rodrigues, head of real estate advisory at Apex Group, AREF Public Policy Committee member and IPF member, said: “SFDR has laudable aims in laying down harmonised transparency rules and integrating ESG factors into investment decisions and financial advice. Constructive engagement between regulators and market stakeholders are key to achieving SFDR real estate regulation.
“Regulators and stakeholders have shared goals, like accelerating net-zero pathways and attracting capital for transition strategies. We hope our paper facilitates industry debate and regulator engagement, so SFDR works appropriately and efficiently for our real estate sector.”