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Sustainability Risks

In addition to the amber risks set out above, Vonovia also reports on selected green risks that relate explicitly to sustainability in order to reflect the growing importance of this risk consideration:

Environmental Risks

The need to consider climate-related aspects is playing an increasingly important role in Vonovia’s business model and strategy, in line with the mounting importance of climate issues in society at large. The resulting climate transition risks describe the effects that can arise for companies due to the process of transformation towards a sustainable economic system. Vonovia has set itself an intensity target equating to a roughly 35% reduction in GHG emissions in its German portfolio by 2030 compared to 2021, in order to achieve its climate objectives and meet the associated regulatory requirements. We are sticking to this climate target despite limited investments in modernization and new construction over the coming year. As a result, we continue to consider the ”risk of non-compliance with our climate path” to be associated with a low (2022: low) amount of loss and consider its materialization to be improbable (2022: improbable).

What is more, crisis situations or catastrophes, such as floods, earthquakes, extreme weather events etc., could have an impact on our real estate portfolio and require specific crisis management measures.  These physical climate risks can be traced back to longer-term shifts in overall climatic conditions. We have assessed the corresponding ”risk of business continuity in disasters/crisis situations” as being associated with an amount of loss of € 5–40 million (2022: € 5–40 million) and a probability of occurrence of 5–39% (2022: 5–39%). To allow us to analyze and assess potential long-term implications of climate change (i.e., those extending beyond the usual risk management observation period of five years), we have developed a climate risk tool that maps the internationally recognized climate change scenarios developed by the Intergovernmental Panel on Climate Change (IPCC). 

Transition risks and physical climate risks could potentially have a negative impact on the Group’s net assets, financial position and results of operations and could make the estimates used in an accounting context less certain. We do not believe that climate change gives rise to any significant direct risks (2022: also no significant direct risks) for the period covered by the risk management system at the moment, e.g., caused by extreme weather conditions such as heavy rain with the potential for floods.  Based on our current knowledge of future developments, this will not have any impact on Vonovia’s balance sheet. This relates, among other things, to the fair values of investment properties, useful lives and the value of assets and provisions for environmental risks, for which no significant need for adjustment emerges (see Environmental Issues). 

When it comes to the development of new and sustainable fields of business in the Value-add segment – particularly with regard to renewable energies – risks can arise from the design and implementation of the business models. Procurement prices can also develop differently than expected. At present, we have assigned this ”procurement price risk in our energy services area” an amount of loss of € 40–150 million (2022: € 40–150 million) and a probability of occurrence of <5% (2022: <5%). With regard to the planned ”expansion of renewable energies using photovoltaic systems,” we have assessed the related risks as having a low (2022: low) amount of loss and a probability of occurrence of 5–39% (2022: 5–39%).

Social Risks

As a result of its insourcing strategy, qualified specialists are in high demand at Vonovia, particularly in comparison with its peers in the sector. Inability to fill vacant positions could lead to a lack of growth, restricted quality and lower levels of customer satisfaction, as well as rising costs due to the need to use subcontractors. Thanks to effective strategies for recruitment and staff retention, we assess the risk associated with a ”shortage of skilled workers” as having a potential amount of loss of € 5–40 million (2022: low) and believe that this risk is unlikely (2022: unlikely) to materialize.

Failure to comply with statutory occupational health and safety and occupational safety management provisions could have a long-term impact for Vonovia and its employees. We currently assess these risks as being associated with a considerable (2022: considerable) amount of loss but believe that they are very unlikely (2022: very unlikely) to materialize.

Similarly, we have also assessed the risk associated with “hazardous materials”, which includes, in particular, potential health risks for tenants, employees and third parties due to the improper use or disposal of hazardous materials (e.g., asbestos), as having a low (2022: low) potential amount of loss thanks to the clearly defined processes and requirements, and consider this risk unlikely (2022: unlikely) to materialize.

“Risks associated with breaches of provisions concerning special contractual rights (Social Charters)”, which are related to tenant protection and, as a result, to the aim of providing “homes at fair prices”, have been assessed as having a substantial potential amount of loss of € 150–375 million (2022: € 150–375 million), although we believe these risks are very unlikely (2022: very unlikely) to materialize.

The annual financial burden for tenants (in the form of ancillary expenses) could increase significantly due to external factors, such as price increases and changes in overall conditions. Reliable market forecasts are virtually impossible due to the ongoing war in Ukraine. In light of the measures already taken, we now believe that the risk associated with “rising energy costs” is unlikely (2022: very likely) to materialize, and have predicted a low (2022: low) amount of loss.

Governance Risks

On March 7, 2023, investigators seized documents from Vonovia premises; they were acting on the suspicion of problematic procedures in the awarding of contracts to subcontractors, to the detriment of Vonovia. Although the final results of the investigations are not yet available, Vonovia assumes that its compliance management system is functioning and effective. As a result, there is no change in the assessment of the risk associated with “bribery and corruption” in a year-on-year comparison. The probability of occurrence (very unlikely) and the amount of loss (low) remain unchanged.

Vonovia is exposed to the “risk of losing the basis for sustainable financing”. Sustainable “green” financing is becoming increasingly relevant. Failure by Vonovia to meet its sustainability targets, for example, could jeopardize the basis for this financing.  At present, we have assigned this risk an amount of loss of € 150-375 million (2022: € 375–750 million) and a probability of occurrence of <5% (2022: <5%).

In addition, Vonovia could be exposed to risks associated with non-compliance with statutory requirements and investor or analyst expectations regarding ongoing sustainability reporting. We currently assess this risk as being associated with a noticeable (2022: noticeable) amount of loss, but believe that it is very unlikely (2022: very unlikely) to materialize.