Environment and Climate

Carbon Reduction in the Property Portfolio/Energy-efficient Modernization

Disclosure

Social and political awareness of environmental and climate issues continue to increase. In this context, we believe that achieving the goals set out in the 2015 Paris Agreement is one of the greatest challenges of our time. The business community is being called on to assume its responsibilities and play an active role in achieving the global targets by taking effective action. The real estate sector has an important part to play because the construction and operation of buildings emit a significant amount of the greenhouse gases that cause climate change.

The European Union has broken down the overall target of limiting global warming to no more than 2°C compared with the pre-industrial era into an ambitious climate action program. The European Green Deal has put the property sector in the spotlight in Europe. The Renovation Wave – a wide-ranging program to boost the energy efficiency of the property sector – reflects this fact. With this in mind, the German federal government is aiming to make the nation’s building stock climate-neutral by 2050* – a target which Vonovia is also committed to. This will initially involve cutting carbon emissions in the property sector by around 40% between 2020 and 2030. A carbon price for fossil fuels will be launched to reinforce the government’s climate package. From 2026 onwards, the installation of oil-fired heating systems will no longer be permitted, but subsidies for energy-efficient building refurbishment will be increased. The Austrian government is going even further and wants to be climate-neutral by 2040.

The increasing number of regulations aimed at combating climate change are having a significant influence on how companies behave. The funding landscape is also changing, on both a national and European level. Frameworks like the EU Taxonomy and TCFD mean that the capital markets are making increasing demands of listed companies in terms of their climate action programs and transparent reporting.

The property sector has a responsibility to find innovative ways to reduce emissions and consumption in the portfolio over the long term while also taking cost-effectiveness, the security of the energy supply and the opinions of tenants into account. As a leading residential real estate company, it is more important than ever that we at Vonovia act as a role model and shape the debate.

Aligning commercial activities with sustainability and ecological criteria also has the potential to open up significant new business areas for property companies. We need to get tenants and other stakeholders involved in order to achieve our goal of significant carbon reductions.

However, we are also exposed to regulatory risks that affect our activities and our business (see Opportunities and Risks, – Annual Report 2020). There is no significant direct physical risk to our properties in Germany, Austria and Sweden from climate change over the short to medium term, such as extreme weather events like heavy rain with the potential to cause flooding. A long-term assessment of potential climate risks is the next step on our agenda.

* Current legal status; we will review the amendments to the German Climate Protection Act planned for this year once they have been passed and incorporate these into our strategy.

Our Approach/Climate path

Vonovia is committed to making its property portfolio climate-neutral by 2050. As the market leader with some 415,000 apartments in Germany, Austria and Sweden, we see ourselves as a key driver of climate action in the housing industry. The size of our property portfolio means that we can help the sector as a whole make great strides towards achieving the goal of a carbon-neutral building stock. We track our emissions using the recognized Greenhouse Gas Protocol. Most of our emissions are  Scope 1 emissions (direct emissions) and Scope 2 emissions (indirect emissions caused by consumption of district heating and power) of the properties in our portfolio. The majority of these are in Germany.

Carbon Emissions (in Germany)

in %

Vonovia unveiled how it can achieve the objective of a climate-neutral housing stock at the “Outlook for Climate-Neutral Living” conference in October 2020. This event involved discussions with representatives from the world of politics, academia and civil society. Using subsidies appropriately and removing legal obstacles are vital for effective climate action in the residential property sector. Vonovia intends to increase its campaigning on these topics and actively inform the public about the energy revolution and what is required to make it happen.

We have developed a climate action plan with the scientific support of the Fraunhofer Institute ISE to evaluate the effectiveness of these measures. This plan reflects our own targets, the average trend in the industry and the federal government’s targets 2050 targets. Scientific targets like the trajectory defined by the Carbon Risk Real Estate Monitor (CRREM) were also taken into account when developing the scenario analysis. On this basis, and in line with the Wohnen.2050 initiative targets, a target corridor has been defined for carbon intensity of 0–10 kg CO₂e/m² of rentable area per year. The resulting climate plan shows clearly that multiple measures are required in order to achieve climate neutrality by 2050.

We analyzed several scenarios that indicated that refurbishment, both as currently practiced and in a more intensive form, is not enough. The required climate trajectory can only be achieved by combining higher energy efficiency, a much greater share of renewable energy sources in the energy supply and further innovative technologies to produce and store energy on a decentralized basis in neighborhoods.

1. Standard scenario: energy-efficient refurbishment is still a fundamental component of our climate action strategy (efficiency first). In 2017 we took an initial step by setting an average annual refurbishment target of 3% of the German portfolio – a clear indication that we take our responsibilities seriously, since the nationwide trend in Germany is a refurbishment rate of 1%. However, the extent of refurbishment needs to be increased in this scenario, ideally to 60%. One way to achieve this is through improved energy efficiency.
2. Hybrid scenario: the first scenario is augmented with the replacement of heating units powered solely by fossil fuels with modern heating systems that are at least partially powered by renewable energy. Optimizing the heating systems with modern gas-powered condensing boilers and additional solar thermal energy makes it possible to reduce emissions further.
3. Climate-neutral scenario: innovations are required in order to make the full transition to climate neutrality at a reasonable cost. Decentralized power generation and local consumption in the neighborhoods will define the energy transition. The focus must therefore be on increasing the use of renewable energies (fuel switch, see Renewable Energy and Energy Mix) and the corresponding neighborhood systems. The power supply has a vital role to play in terms of sector integration. Integrating the power, heat and transport sectors (sector coupling) can significantly boost the efficiency and autonomy of a housing estate. In the future, community development plans will focus on generating green power and green heat in a neighborhood for local consumption, or at the very least using green district heating to provide a climate-friendly heat supply. The energy concept is backed up by infrastructure for sustainable mobility solutions (see Renewable Energies and Energy Mix).

Modeling of Vonovia’s Climate Paths 2020–2050 (in Germany)

Carbon intensity in kg CO2e/m²a

Further information can be found in the Innovation Platform and Environmental Issues sections of the 2020 Annual Report.

All of these steps involve balancing the demands of the capital market for reasonable returns, the costs of climate action measures and our own commitment to offering tenants homes at fair prices. In Germany, we use public funding programs to keep modernization work affordable for our tenants. The revised terms of the federal funding program for efficient buildings (BEG) include some interesting options in this respect, such as direct subsidies for modernization work. We are taking a broad-based approach in order to avail ourselves of these new opportunities. Serial refurbishment is another approach that will limit the costs of modernization.

Vonovia also uses an extensive number of partnerships and research projects to find cost-effective and innovative ways to achieve energy efficiency and climate neutrality in its portfolio. By focusing on individual neighborhoods, we can use intelligent heating units and local heat systems to leverage synergies. We trial new approaches in our buildings.

This active, research-based approach underlines our role as a driving force for a sustainable property industry. We believe it is vital that the entire housing industry starts moving towards climate neutrality while communicating our progress on the basis of transparent and comparable metrics. This led us, as part of a group of 24 founding members, to set up the Wohnen.2050 initiative last year. More than 80 companies with a total of 1.8 million residential units have now signed up. In addition to providing a forum for exchange, the initiative has also pushed for more standardization in terms of how carbon emissions are measured and presented by the German housing industry. The reporting framework for carbon emissions developed in the initiative has found its way into the corresponding working aid published by the German housing association GdW. We campaign continuously for the use of these frameworks across the entire German housing industry so that we have a true and fair view of each company’s climate performance and make reliable comparisons.

The climate plan through 2050 was initially defined for the portfolio in Germany. BUWOG in Austria has taken a different path to date. Our subsidiary has been involved in the “klimaaktiv pakt2020” since 2011 and exceeded some of the 2020 targets for its portfolio by a wide margin. BUWOG submitted its application for the “klimaaktiv pakt.2030” in September 2020. For its Austrian portfolio, BUWOG is committed to reducing greenhouse gas emissions by at least 50%, increasing energy efficiency by 25% and increasing the share of renewable energies in its energy mix to 46% by 2030.

We have also defined our own interim targets for Sweden: By 2030, we want to reduce energy consumption per m² by 30% compared to 2015. Paired with the complete switch to renewable energy sources, this will have a significant effect on our carbon emissions.

In the future we intend to harmonize our climate change strategy and the corresponding targets and activities across the Group.

Organizational Establishment in the Company

The Portfolio Management unit reports to the Chief Rental Officer (CRO) and is responsible for the general planning and coordination of modernization measures in the portfolio. Within the unit, the new Climate-neutral Portfolio/Strategic Projects department is tasked with developing solutions for bringing our property portfolio and the corresponding investment strategy in line with our climate action goals. It is also supported by the new Sustainability/Strategy unit, which reports to the Chief Executive Officer (CEO). The properties/neighborhoods to be modernized are selected in a targeted manner in cooperation with the regions, and the optimal degree of modernization for each building is defined. Investments for modernization measures are approved by the full Management Board. Compliance rules require the involvement of the Supervisory Board in some cases.

The Investment Management department manages the budget for modernizing the portfolio. Vonovia Technical Service is responsible for planning and execution.

Objectives and Measures

The development of our climate plan is part of our systematic response to the impact of climate change on our business development. We have therefore translated the findings from the climate plan into two targets for Vonovia:

• A climate-neutral property portfolio by 2050
• Reduce the carbon intensity of the property portfolio in Germany to 30 kg CO₂e per m² of rentable area by 2030

Because our investment decisions are based on these targets, the carbon intensity target has been included as a key metric in the Sustainability Performance Index (SPI). The metric comprises Scope 1 and Scope 2 emissions across our entire portfolio, and part of the Scope 3 emissions.*

* We track some Scope 3 emissions. The Scope 3 emissions shown in our climate reporting are only for energy and relate to portfolio operations.

Carbon intensity (in Germany)

in kg CO2e/m² of rentable area

In the reporting year, the carbon intensity in Germany came to 39.5 kg CO₂e/m² (Scope 1+2 only: 35.1 kg CO₂e/m²), slightly below our target pathway. This was down to several factors, such as modernization work which improved energy efficiency, purchases of green power and better carbon intensity in district heating. In addition, we have harmonized the data sources and updated the emission factors for the calculation of carbon intensity in the current fiscal year. As a result, the figure for 2020 is lower than the figure stated in the non-financial statement in the Annual Report and is not directly comparable with the figures for previous years. With this approach, we are continuing on our path of continuously improving the calculation of carbon emissions and providing a comprehensive overview of our climate impact (see carbon footprint key figure table)

The energy-efficient modernization measures focus on insulating facades, cellar ceilings and roofs/penthouses, modernizing windows and the installation of new boilers. We pursue a needs-based approach to these measures and take care to choose the optimal degree of modernization for each building and the neighborhood as a whole. This enables us to develop integrated solutions for carbon optimization and supplying entire groups of buildings with energy (see Renewable Energies and Energy Mix).

In 2020 we:

• Modernized a rental area of around 690,000 m² and insulated facades, roofs and cellar ceilings, reducing carbon emissions by around 8,800 t
• Replaced the boilers for 7,247 rental units, reducing carbon emissions by around 3,600 t
• Invested € 34.24 per m² in energy-efficient refurbishment (total portfolio)

Energy Efficiency Standards in the Portfolio (Germany) – 30.9% in Efficiency Class C or better*

Portfolio share in % (relates to final energy demand and rentable area)
Energy efficiency classes in kWh/(m²a)

The refurbishment rate for the Group as a whole was 2.7% (Germany: 2.9%). The decline compared to the previous year (2019: 3.6% overall, 3.7% in Germany) is partly due to work being postponed in Berlin due to the rent freeze, which has now been overturned. This year the refurbishment rate will also be slightly lower due to the switch to new funding conditions.

Developing the climate plan and the three scenarios showed us how important it is for us to find solutions that go beyond conventional modernization measures. We are focusing on the intelligent networking of heat and power in neighborhoods and technological developments to make buildings more energy-efficient. Vonovia uses projects to investigate and test potential solutions at a reasonable cost. The new Innovation and Business Building (I&BB) department is dedicated to developing new fields of business related to energy generation, distribution and mobility. This also includes implementing pilot projects in cooperation with partners from various disciplines, like the Open District Hub (ODH) in Bochum-Weitmar, which is funded by the state of North Rhine-Westphalia (more information about our I&BB department can be found in the Annual Report 2020). The Climate-neutral Portfolio/Strategic Projects department is responsible for strategic planning to prepare the path to a climate-neutral portfolio by 2050.

Average energy intensity of the portfolio (in Germany)*

in kWh/m²

The effect of the modernization measures on our portfolio’s carbon intensity will be an important factor in the planning and managing of modernization work in the future. In addition to optimizing building shells, we will also be placing increased emphasis on the transition to lower-carbon energy sources. We are looking beyond our own system boundaries and building strong partnerships in this area. We are currently working on a software solution for assessing the environmental impact of property portfolios. This solution will facilitate transparent and evidence-based management. The project is led by the Climate-neutral Portfolio/Strategic Projects department in cooperation with GLS Bank, the advisory company d-fine, and the climate metrics provider right.based on science. The software is based on the x-degree compatibility (XDC) model, which is used to analyze the economic and ecological aspects of decarbonization based on a temperature in degrees Celsius. The software solution will be deployed as a management tool in the course of 2021.

We took part in the BaltBest project once again in 2020. BaltBest is the largest ongoing research project in Germany looking at the influence of management on the efficiency of legacy heating systems. One of the aims of the project is to research ways of optimizing the management of existing heating units and the relationship between technology, user behavior and construction measures. Vonovia also joined the CoSoWin project in 2020, which aims to develop a window with a transparent pane capable of producing solar power. This would be a great step towards integrating photovoltaics into the fabric of the building. Another example of what was previously an unusual approach is the Energiesprong initiative, a novel serial refurbishment concept that represents a high level of living comfort, minimal refurbishment times and an innovative financing model. The aim is to conduct refurbishments to bring buildings to net zero, meaning that they generate as much energy in a year as they consume. The serial approach relies on industrially prefabricated construction components, with the aim of reducing the price of refurbishment per square meter. We are taking part in a “volume deal” organized by the German Energy Agency (dena), which is a declaration of intent by the housing and construction industries to the serial refurbishment of more than 11,600 apartments over the next four years.

Planned for 2021

• Extend the climate plan to our properties in Austria and Sweden
• Implement further energy-efficient modernizations for more than 7,000 residential units (excluding community developments)
• Continue boiler replacement for around 4,500 residential units
• Implement concept to replace oil-fired heating units with hybrid heating systems
• Reduce carbon intensity by at least 2% compared with 2020
• Refine the climate pathway model in cooperation with right.based on science and d-fine
• Continue participation in BaltBest and roll out Energiesprong pilot projects
• Closer collaboration with the biggest energy suppliers, like E.ON in Sweden