The importance of EU Taxonomy alignment for your assets


Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

As sustainability becomes a key priority for many investors and funding institutions, reducing the environmental impact of your assets can enhance their long-term value and offer a competitive advantage.

One way to ensure that your assets are meeting the highest sustainability standards is through EU Taxonomy alignment. Catalyst CEO and founder Eoin Leonard has identified EU Taxonomy alignment as a key ESG trend for 2024, highlighting its increasing importance with market players over the past 24 months.

Although it’s not mandatory to align assets with the EU Taxonomy, forward-thinking developers, investors, and designers understand how beneficial it can be in the short- and long-term; not only from a sustainability and ESG perspective, but also when it comes to opening access to capital and future investment potential. While you may be apprehensive about the cost and scale of the work needed for EU Taxonomy alignment, in our experience (and that of our clients) it is much more reasonable and much less intensive than expected — and delivers compounding results.

Read on to discover the benefits of aligning assets with EU Taxonomy and learn how to get started on your EU Taxonomy alignment journey.

Four benefits of EU Taxonomy alignment in construction and real estate

Here are four ways that EU Taxonomy alignment can enhance your assets and your business.

1. Shows commitment to sustainability and green practices

Assets need to meet rigorous specifications to qualify as EU Taxonomy-aligned. These specifications relate to the EU’s climate and environmental objectives as outlined in the Paris Agreement and its long-term strategy to be carbon neutral by 2050.

This means that the steps you take towards EU Taxonomy alignment have a tangible environmental impact. Working towards these objectives results in reduced emissions, a lower carbon footprint, and increased energy and water efficiency.

In addition to the environmental impact of these changes, adopting these green practices can also have a positive effect for your business and reputation. With climate change and sustainability at the forefront of many peoples’ (and investors’) minds, showing good history — that is, a documented record of proactive ESG initiatives — demonstrates that your business’s commitment to the environment is truly a core value and not just a box-ticking exercise.

2. Reduces risk and future-proofs your assets

Dark green money is always going to be a safer investment than brown money. Green investments are associated with less risk because they are better equipped to deal with the ongoing issues of climate change — for example, through less reliance on resources that may become scarce, like water or fossil fuels.

The EU Taxonomy is currently the gold standard of environmental regulations, putting EU Taxonomy-aligned assets on the cutting-edge of sustainability goals. This early advantage also places developers, investors, and designers in an excellent position when it comes to other emerging taxonomies and regulatory requirements particularly as other countries develop their own taxonomies based on the EU framework.

3. Increases access to capital

Many investors and lenders are prioritizing sustainability as a crucial factor in their decision-making process. Central banks and regulators are under increasing pressure to report on ESG initiatives due to regulatory frameworks like EU’s Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD), and UK’s upcoming Sustainability Disclosure Requirements (SDR). These regulations affect the balance of available funding resulting in an increase in access to capital for green investments.

As investors and banks strive to build portfolios in line with their values, their own environmental and financial responsibilities, and mounting governmental and social pressures, a solid certification like EU Taxonomy alignment can make assets stand out and enhance their attractiveness.

4. Lowers ongoing costs

Aligning assets with EU Taxonomy doesn’t just improve their future desirability; it also improves their current financial costs. Since the changes required for EU Taxonomy alignment make assets more sustainable and environmentally friendly, they can also reduce ongoing overheads and operational expenditures.

For example, increasing an asset’s energy efficiency can lower its energy costs and utility bills on a continuous basis giving you a return on investment in both the short- and the long-term.

Three assessments to kickstart your EU Taxonomy alignment

The first step of the journey is to evaluate your current assets or process and see what needs to be done to bring it into alignment with EU Taxonomy.

As part of your EU Taxonomy alignment strategy, the following assessments can help you understand your current performance, identify opportunities, and support your compliance:

1. Climate Vulnerability and Risk Assessment

Climate Vulnerability and Risk Assessment (CVRA) assesses the physical risks associated with climate change and suggests how to mitigate their effects through climate-resilient technologies and infrastructure.

2. Life Cycle Assessment

Life Cycle Assessment (LCA) assesses the environmental impacts associated with the entire life cycle of an asset, from sourcing materials to waste disposal, and recommends ways to enhance it throughout via sustainable design and development practices.

3. Disassembly and Adaptability Study

Disassembly and Adaptability Study assesses the feasibility of dismantling, repurposing, or adapting existing buildings and structures, cutting down on waste and minimizing the environmental impact of new construction.

Aligning your assets with EU Taxonomy unlocks several benefits. It boosts your business’s reputation, provides a competitive advantage, minimizes risk, increases your funding opportunities, and cuts down on operational expenses; all while reducing your environmental impact.

If you are ready to build a greener and safer future, start your EU Taxonomy alignment journey now — and improve your assets for the better.

This article was written by Ciaran O’Leary, Head of Sustainability at Catalyst.