Australian real estate sector encouraged to view what is happening in Europe in terms of ESG developments

1 June 2022

The number of European investors in Australian real estate may soon reduce as the European Union (EU) tightens criteria for ‘green’ real estate investing – there as well as offshore. And vice versa, expectations of domestic institutional investors are also likely to be influenced by rising regulatory requirements in Europe.  

European investors need to determine if they can invest in Australian developments and assets under new EU regulations (in particular SFDR Article 9 and EU Taxonomy), says DWS, the global real estate investment and asset manager.

DWS’s Aleksandra (Sasha) Njagulj, Global Head of ESG for Real Estate said, EU Taxonomy requires real estate portfolios promoted as sustainable to meet certain, rigorous criteria. This will require Australian property owners, managers and developers to meet the performance and labelling requirements. Otherwise, this could see some assets being ‘stranded’ for European investors.” 

Buildings with the lowest energy performance are already illegal to rent in the UK, with the same concept soon likely to be adopted across Europe. SFDR and EU Taxonomy are lifting the requirements to a much higher level. “Australian property owners and managers would need to provide EU investors with more accurate asset labelling with respect to the ESG aspects of their assets.” 

“NABERS system is well placed for this, as it covers key metrics, such as energy and water consumption, based on real usage data.”

She cited that the building sector is estimated to produce around 40% of theoverall carbon footprint [GlobalABC, 2020] and Europe has to reduce its carbon output, as part of the 2050 net-zero carbon commitment.

Jessica Hardman, Head of Portfolio Management, European Real Estate at DWS, noted that some Australian investors and managers here were expecting the European moves to eventually make it here.

“By way of example following Europe introducing Sustainable Finance Disclosure Regulations (SFDR), the UK regulators are consulting with the local institutional real estate industry to adopt and develop their own ESG metrics and product disclosure rules. Australia may need to do similar in the future.”