What does the EU Sustainability Omnibus mean for real estate ?

To review the details of the proposed changes to key legislation, click here. Read on to find out how these proposals could affect real estate investors and occupiers.

Background to the Omnibus

In support of the EU Green Deal, over the last few years the EU introduced a series of new directives focusing on improving corporate transparency and increasing the pace of action towards sustainability targets. In addition to supporting the objectives of the Paris Agreement and other social and environmental goals, these initiatives aim to protect investors from climate and sustainability risks and allow policymakers and consumers to make informed choices based on corporate social and environmental impacts.

However, the recent Draghi report on EU competitiveness highlighted several issues with the rules, including the disproportionate burden they are likely to place on SMEs and small mid-cap companies. The Omnibus proposal aims to address these issues and improve the EU’s ability to compete effectively in the global economy.

The European Commission estimates that the changes introduced by the Omnibus will save companies approximately EUR 6.3 billion per year in addition to significant one-off cost savings relating to the setup of reporting and assurance processes.

Potential Impacts on Investors and Occupiers

High-quality sustainability disclosure is key to managing risk for both investors and occupiers of real estate. While reporting requirements may change for many companies, the fundamental business case for environmental performance, social responsibility, and transparent governance is still as relevant as ever.

Reduced coverage and more time to prepare

• Many small and mid-cap investors will now be exempt from the Corporate Sustainability Reporting Directive (CSRD) due to the increased employee and financial thresholds. For large occupiers not currently required to report under the CSRD, there is now some extra breathing room (possibly around two years) before compliance is needed. However, any company that has already filed a CSRD report will be required to continue filings.
• The Corporate Sustainability Due Diligence Directive (CSDDD) timelines have also changed, applying to large companies a year later (2028) rather than 2027.
• Whilst waiting for the revisions to be finalised, companies must also navigate existing compliance obligations since 15 Member States have already transposed these reporting requirements into law.

Understanding sustainability impacts, risks, and opportunities

• The core principle of the reporting requirements – double materiality (environmental & social impacts, risks and opportunities both to and caused by the reporting entity) – remains unchanged. In-scope companies and their direct business partners, which will still cover a significant proportion of the global economy, should be carrying out materiality assessments as a best practice to create long-term value while managing climate and other sustainability risks.
• The first companies to undertake double materiality assessments now possess valuable insights into the financial risks and opportunities that sustainability issues present for their business and stakeholders. Conducting a double materiality assessment can strengthen investor and stakeholder relations and support business resilience, even if CSRD reporting requirements are delayed.
• The CSDDD revisions now align with CSRD guidance for climate transition plans (where transition plans previously had to be ‘put into effect’, they must instead include ‘implementing actions’). Given the material aspect of emissions from real estate and the supply chain, most companies should still prepare a detailed climate transition plan for their portfolios.

Reduced data collection & reporting requirements

• The Omnibus proposal includes a recommendation to revise the European Sustainability Reporting Standards (ESRS) to substantially reduce the number of required metrics and qualitative disclosures. The current ESRS includes mandatory metrics which can be challenging to gather, due to the many parties involved in data exchanges across the property value chain (landlords, tenants, property managers, facility managers, construction and development, and more).
• The data disclosures included in the ESRS remain key to understanding sustainability performance. Relevant metrics and policies should be managed as a matter of good practice – to optimise operations, manage risk and communicate performance. Real estate investors and occupiers that have invested considerable time and resources in improving their data collection, management, and reporting practices in line with the current CSRD should consider how they can leverage these efforts to create value and differentiation.
• Real estate investors and occupiers in scope of the CSDDD would only be required to conduct due diligence for direct (Tier 1) suppliers, unless there is a known risk deeper in the supply chain. In addition, companies will be required to update their supply chain due diligence assessment and policies less frequently (every five years instead of every year).
• Companies no longer falling under the scope of the CSRD should evaluate the benefits of adopting the voluntary SME reporting standard recommended in the Omnibus proposal. Many have already started preparing for CSRD compliance, and the voluntary SME reporting standard will serve as a means of managing information requests from their value chain partners by limiting the scope of what can be requested.

Access to Green Finance

• Many financial institutions and several national banks now use the EUT as the benchmark for green loans and investments. Assessment of full and partial alignment with the current, and, when applicable, revised taxonomy, can help real estate assets and funds drive more sustainable investments in a low carbon economy, even on a voluntary basis.
• EUT simplifications will further ease the burden of disclosure requirements, but technical screening criteria is yet to be reviewed.

What happens now ?

The European Parliament and European Council both need to approve the changes proposed by the Commission, and additional amendments may be negotiated. This process can take months, or even years. Once adopted, Member States will then have one year to transpose the Directive into national law.

CBRE works with both real estate investors and occupiers to understand changing regulatory risks and help prepare for compliance. We have seen that with better data collection and management processes in place, our clients feel more informed and able to navigate the evolving regulatory landscape.

Text written by David Maguire, head of Occupier ESG, Continental Europe at CBRE.