How to thrive in the new, green EU policy landscape

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How well do you know your CSRD from your SFDR from your CSDDD? Or even your EPBD from your EED? And do you know how these will impact your business? For those working in the built environment, it feels like there is an avalanche of new regulations and directives from Europe to get to grips with, each with its own confusing title.

The European Green Deal – the package of EU policy initiatives that aims to make the union climate neutral by 2050 – contains dozens of different laws, many of which will impact the building sector.

Some of the most important laws concern corporate finance and governance, rather than buildings explicitly. But their effect is quickly trickling down to the built environment. These are part of the EU’s Sustainable Finance Framework and could be grouped under the broad term ESG (Environmental, Social, and Governance). There is no strict legal definition of ESG, but the term is used to generally refer to corporate policy and regulation in these fields.

These new directives and regulations include:

• The Corporate Sustainability Reporting Directive (CSRD) requires companies to report on the impact of their activities on the environment and society. It applies to all publicly listed – as well as larger, non-listed – companies. It is expected to impact 50,000 businesses across Europe. The directive requires companies to collect more detailed and robust data on the environmental impact of their activities. For example, it is pushing companies in the building sector to measure the whole life carbon of their developments. Smaller companies not directly subject to the directive may also start to receive more requests for environmental information related to their clients’ CSRD reporting obligations. The CSRD was transposed into Irish law earlier this year, and the first Irish companies will begin reporting under the directive shortly.
• The EU Taxonomy Regulation (2020) is a classification system used to determine whether an economic activity is “environmentally sustainable”. It is designed to prevent greenwashing. To meet the definition of sustainable, an activity must contribute substantially to at least one environmental objective, and do no significant harm to the other environmental objectives . Detailed sustainability criteria have been developed for buildings under the Taxonomy. Many investors, procurers, and developers are keen for their buildings to comply with the Taxonomy, as it will enable them to access ‘green’ finance at lower rates of interest.
• The Sustainable Finance Disclosures Regulation (SFDR) sets rules for how those who market and advise on financial products communicate sustainability information. In force since 2021, it requires these parties to evaluate any adverse sustainability impacts of their investment decisions or advice. The goal is to tackle greenwashing and make it easier to evaluate the sustainability of financial products. Real estate investors and other players in the property market may fall under the requirements of this directive.
• The Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) was formally adopted by the EU earlier this year but has not yet been signed into Irish law. It applies to EU companies with more than 1,000 employees and net worldwide turnover of about 450 million, and to non-EU companies that generate the same amount of turnover within the EU. It requires these companies to carry out due diligence to identify actual or potential adverse impacts of their activities, and their chain of activities, on human rights and the environment. These companies will have to introduce a climate change transition plan to ensure their business strategy is aligned with EU climate targets under the Paris Agreement.

We see the impact through the growing requests from occupiers for more sustainable spaces to help support their own requirements to comply with this legislation.

All of this legislation is starting to impact buildings here in Ireland. “We are seeing the impact of the new European legislation and regulations in various ways,” says Neil Menzies, director of sustainability at leading Irish real estate group Hibernia, which specialises in the Dublin office market. Menzies says these new laws are making their way into the due diligence processes of institutional investors and lenders, who are increasingly asking to see things like energy and carbon performance data for buildings, decarbonisation strategies, and green building certificates. “Hibernia's sustainability strategy to build and operate the most sustainable buildings with the performance and credentials to support this ensures that we are able to respond to these queries”.

“We also see the impact through the growing requests from occupiers for more sustainable spaces and the performance of these spaces to help support their own requirements to comply with this legislation,” he adds, “especially legislation that requires them to report on their own ESG related performance and key performance indicators, such as the CSRD and CSDDD.”

Leading Irish homebuilder and developer Cairn Homes is reporting a similar impact. “Cairn will be reporting under CSRD from the financial year 2025, and as part of that will be reporting the percentage of our activities which are aligned with the EU Taxonomy,” says the company’s head of sustainable construction and reporting, Stephen O’Shea. “However, we are already seeing our institutional customers request evidence that buildings we are selling this year – which are likely to have been designed in 2019 and procured in 2021 – are so aligned.”

“Thankfully our early commitment to science- based decarbonisation targets has meant that we have whole life carbon calculations to hand, and our biodiversity net gain targets ensure that we have the surveys, designs, and data required to evidence our efforts in that regard.”

The EPBD & Beyond

Besides these ESG directives and regulations, other new laws under the European Green Deal relate more directly to buildings and energy. These are beginning to trickle down and impact project specifications too.

• The Energy Performance of Buildings Directive (EPBD) is the most critical European law for the built environment. Previous versions of the EPBD led to the introduction of BER certificates and nearly zero energy building (NZEB) standards in Ireland. The latest version was adopted by the EU earlier this year. It places a stronger focus on renovation and includes rules on embodied carbon for the first time. The directive requires that all new buildings be “zero emission” from 2028, and that the life cycle global warming potential (GWP) of all buildings be disclosed, and limited, from 2030. The EPBD also requires member states to improve the energy efficiency of their worst performing buildings. The latest version of the EPBD must be transposed into Irish law within two years. The IGBC is currently working on a project to support this transposition.
• The Construction Products Regulation (CPR) aims to ensure the quality and safety of construction products. The latest version (2024) lays down more harmonised standards to help construction products circulate freely within the single market. For the first time, the regulation considers both the lifecycle global warming potential of construction products and their wider environmental impact.
• The Energy Efficiency Directive (EED) (2023) sets overall energy efficiency targets for member states. It requires EU countries to achieve an 11.7 per cent reduction in final energy consumption by 2030, and with regards to buildings, puts a stronger focus on alleviating energy poverty, and on delivering energy efficiency improvements for vulnerable householders.
• The Renewable Energy Directive, last revised in 2023, sets a binding target that 42.5 per cent of the EU’s energy supply be delivered from renewable sources by 2030 (up from a 32 per cent target in the previous version).

These regulations are starting to have an impact too, especially the EPBD. Even though it will be a few years before its requirements come into force, many developers and procurers are keen to ensure buildings under design now are ‘future-proofed’ and compliant with the EPBD.

“The EPBD and EED impact us directly by setting stricter minimum requirements for how we develop new buildings – for example more onsite renewables, increased energy efficiency, and ongoing monitoring of performance etc,” adds Neil Menzies of Hibernia. “We are moving from a world of voluntary sustainability action to one where sustainability action and performance is now a mandatory licence to operate."

How to prepare

There is a way through this confusion: focus on delivering high quality, healthy, sustainable buildings whose environmental performance is backed by solid data.

For anyone designing, procuring or developing buildings, the European policy landscape can seem daunting. But there is a way through this confusion: focus on delivering high quality, healthy, sustainable buildings whose environmental performance is backed by solid data.

While it might technically be possible to, say, define and meet the requirements of the Taxonomy in quite a narrow fashion, the combined effect of all these initiatives will require a robust and holistic approach to sustainability.

The EPBD for example, will require us to start measuring the whole life cycle carbon of buildings and to pay more attention to indoor environmental quality; the CSRD is already putting pressure on developers to gather data on whole life carbon, biodiversity, and circularity; while the Taxonomy is encouraging developers to be more ambitious on carbon on circularity. The CPR, meanwhile, will normalise reporting on the environmental performance of construction products.

So, taking a holistic and rigorous approach to sustainability will be the only path forward. The Irish Green Building Council’s Home Performance Index (HPI) can help for residential buildings. It takes a holistic approach to sustainability across more than 30 indicators, covering energy efficiency, indoor environmental quality, embodied carbon, water efficiency, daylighting, acoustics, biodiversity, and transport.

The next version of HPI, v3.1, will embed compliance with the Taxonomy as a minimum requirement for certification. HPI v3.1 will be launched in November at the IGBC’s Better Homes Conference. The development of this update to HPI was funded by the Smarter Finance for EU project (www.smarterfinance4.eu).

The IGBC provides Home Performance Index training for those wishing to advise clients on HPI and submit assessments, see www.homeperformanceindex.ie for more information