Challenges, Opportunities and Risks

The implementation of climate and environmental remediation in residential properties is closely interlinked with analyses of potential and economic feasibility studies. We take into account the interests of our customers as well as those of our company. This creates various challenges, opportunities and risks for our company.

Challenges

• Increasing and more stringent regulation can make it a challenge for Vonovia to implement necessary climate and environmental protection measures in a cost-effective manner and to keep the financial burden on its tenants at a minimum. This is because social acceptance of energy-efficient modernization measures/the allocation of modernization costs is low.
• Increased construction costs can result in materials that make ecological sense, but are possibly more expensive, not being purchased for cost-related reasons.

Opportunities

• Refurbished buildings are more resource-efficient, meaning that rising energy costs, e.g., as a result of carbon pricing, will also increase the cost-saving effects. This will make it possible to achieve a neutral impact at the level of rent including ancillary expenses for refurbished properties.
• The expansion of renewable energies and the decentralization of the energy revolution via the development/use of renewable energy sources on site offer huge potential, e.g., via PV systems, hydrogen and sector coupling. The Landlord-to-Tenant Electricity Act (Mieterstromgesetz), however, which makes it difficult to implement the measures, presents a challenge in this respect.
• There is an opportunity for Vonovia to expand the sale of green products and services and to make our neighborhoods even more appealing, e.g., green electricity sales via our subsidiary VESG as well as a more ecologically-friendly residential living environment thanks to the creation of wildflower meadows, insect habitats and trees.

Risks

• Regulatory and legal risks: The introduction of carbon pricing, for example, could result in these costs being shouldered entirely by the landlord if they cannot be passed on to tenants. The resulting costs could affect the availability of financial resources for measures designed to promote environmental and climate protection. The tightening of requirements for new construction and energy-efficient refurbishment could push construction prices up, meaning that the measures may no longer be economically viable. The rent freeze in Berlin in 2019, for example, cut Vonovia’s refurbishment rate from 4.0% to 3.7%.
• Reputation: Green residential environmental design has to meet mounting requirements. It is not, however, always possible to convince tenants of measures that make ecological sense.
• Physical risks: Heavy rainfall and heat waves are becoming increasingly common and are having an impact on our building stock, the well-being of our tenants, and animal and plant life. These developments are associated with increasing insurance and investment costs for Vonovia as well as risks to biodiversity. One positive aspect from our perspective is the fact that the majority of Vonovia’s properties are not located in areas at risk of water shortages or flooding, meaning the physical risks here are on the low side. Risks caused by heavy rainfall and associated costs are already being addressed in isolated cases and could become increasingly important in the future. In addition, the regulatory requirements that apply in this area are increasing, meaning that Vonovia is incurring additional financial expenses in order to implement them.