2023 was billed as the year that sustainability regulations catch up with sentiment. Much industry activity to date has been voluntary as a result of shifting public opinion, but this year sees an influx of new environmental reporting standards, legally required and, again, some voluntary. These include UK, European and US reporting requirements. 

Government bodies and regulators have worked for years on drafts and guidelines, many of which have either just come into force or are under consultation. While facilitating the transition to a greener economy, the sheer volume and speed of change is challenging: regulations have been in the pipeline for a while, and to some extent companies have had opportunities to prepare, however, we know many aren’t ready and, consequently, the upcoming requirements have large implications. 

The good news is that organisations that adopt these frameworks early can lead by example, demonstrating their accountability and commitment to action. With the vast majority of regulations being influenced by the framework of the Task Force on Climate-Related Financial Disclosures (TCFD), those that adopt this well will have a head start on reporting other regulations. 

2023 started with the roll out of the EU taxonomy KPIs reporting for certain non-financial undertakings and the Corporate Sustainability Reporting Directive (CSRD) coming into force, which aims to ensure that companies disclose information on both the risks that sustainability issues present, the impacts of companies themselves on people and the environment, and improve the allocation of capital to companies engaged in sustainable activities.

With six environmental objectives outlined in the EU taxonomy, firms are now required to report on the proportion of turnover, capital expenditure and operating expenditure that comes from qualifying environmentally sustainable activities. Detailed technical screening criteria set out thresholds for defining what it means for the acquisition, ownership, and construction of new buildings, renovations, and refurbishments.

In the UK, 2023 marks the first TCFD-aligned mandatory reporting on climate impacts, risks and opportunities for some companies. Meanwhile, the US SEC Climate Risk Disclosure rules are planned to be finalised soon, with three scopes of GHG emissions and climate impacts proposed to be reported on, and targets and transition plans disclosed. 

For financial market participants, the EU Sustainable Finance Disclosure Regulation (SFDR) deadline is 30 June for those in scope to disclose their first statements on the principal adverse impacts of their investment decisions. The UK Sustainable Disclosure Requirements (SDR), due to be published mid-year, aim to prevent greenwashing by introducing consumer-focused labelling and increase transparency on the sustainability of investment products. 

In addition, there’s several new draft voluntary reporting frameworks that could be widely adopted. The International Sustainability Standards Board aims to deliver a global baseline of disclosure standards and general requirements for companies, to provide investors and lenders with a complete set of sustainability-related financial disclosures.

The purpose of UK Real Estate Net Zero Carbon Building Standards is to provide a single methodology in determining what constitutes a net zero building: following data collection in January, the process of identifying the most appropriate methodology is underway. The Taskforce on Nature-related Financial Disclosures (TNFD), meanwhile, should provide a framework for organisations to address nature-related risks and opportunities with the ultimate goal of channelling capital flows into positive action. 

To tackle this to-do list, first identify which country- and region-specific compulsory regulations affect your company and understand what type of reporting is needed. Also consider which voluntary standards are best suited to your company’s activities and reporting needs, and how to achieve these. Next define methodologies and set reporting processes in line with the relevant regulations and frameworks. Finally, assess the sustainability impacts and communicate results internally and externally.

Depending on what’s discovered through measurement and reporting, possible outcomes include changing investment and occupational trends, potentially impacting operational costs and capital investment. But more broadly, these new regulations should bring crucial transparency for investors and occupiers to make sustainability assessments of the risks and opportunities associated with assets.

Further information

Contact Matthew Fitzgerald or Sarune Ringelyte

What can real estate owners do to begin assessing physical climate risks?