CO2 emissions are moving rapidly up the agenda of commercial property stakeholders – as upcoming EU legislation is expected to prompt the commercial property market to include energy efficiency and other sustainability factors. The regulation could also have an impact on the value of commercial properties with a poor energy-efficiency rating.

Danske Bank and Realkredit Danmark have therefore begun to assess what this could mean for valuations, credit risk and ultimately even the terms and conditions for financing.

“Our interests are essentially the same as our customers – to ensure we have sustainable real estate where valuations remain intact and robust for the long term. In the not-too-distant future, however, we must expect that new regulations will make high-CO2-emission properties more difficult to sell, which could of course affect valuations and hence our credit risk. Energy efficiency in the real estate industry will therefore play an increasingly prominent role in our value offer to our customers, and mortgage financing terms will also eventually come to be influenced by a property’s CO2 emissions and the customer’s ESG profile,” says Kamille Skytte, CEO at Realkredit Danmark.

At some point, Danske Bank and Realkredit Danmark will therefore be offering customers with real estate at the better end of the energy-efficiency scale access to a broader palette of financing products and at relatively more favourable terms than customers with less energy-efficient properties.

“This process will stretch over several years, and engaging our customers in dialogue is the starting point. In essence, this is a due diligence issue where we want to give our customers as much notice as possible, so they have a chance to get moving. We have already begun to actively advise our customers and are fully focused on developing the necessary tools and partnerships that will enable us to support our customers throughout the entire transition process,” adds Kamilla Skytte.

The idea is to help customers prepare a plan for improvements prior to any legislation coming into effect in 2025.

New standard to provide a better overview
One initiative is a new ESG reporting template that aims to create a common standard, so real estate companies can better compare data and performance measures on ESG factors and thus strengthen competition in the ESG area.

Several leading players in the real estate industry have joined forces to establish a free, open source ESG reporting template for the entire industry’s value chain. The project, Real ESG – The Real Estate Reporting Framework, aims to ensure that ESG reporting in the property business is transparent, concrete and comparable.

How the real estate industry calculates and reports CO2 emissions, etc., varies greatly. Some calculate total consumption for their properties, while others do not include tenants’ consumption, for example. Danske Bank and Realkredit Danmark are keen to support the development of a common standard and have joined a project supported by Realdania and a strong team of real estate professionals.

“The central idea behind the tool is to create a common standard, so the ESG data of real estate companies is calculated and set up in the same way. Here, our role is to contribute with knowledge of reporting and ESG data from a long-term perspective. We are keen to help our customers move in a greener direction with the new reporting template by making it easier, faster and cheaper to report and set targets in the ESG area. At the same time, the standard will give us access to more uniform and transparent ESG data, which presents an opportunity to for us to better support customers by financing the investments necessary to reduce CO2 emissions,” explains Bjarne Jørgensen, Head of Large Real Estate at Realkredit Danmark.

The project’s primary target audience is property owners, but the aim is for the project to be useful for the entire real estate industry’s value chain, including developers, constructors and advisors.