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Procedure for Determining Taxonomy Alignment

At Group level, the following key figures are obtained from the taxonomy-aligned shares of turnover, capital expenditure and operating expenses for the 2023 reporting year, reported under EU environmental objective 1 (climate change mitigation) as in the previous year.

The largest share of taxonomy-aligned turnover can be attributed to rental income from taxonomy-aligned buildings (activity 7.7). A large share of taxonomy-aligned capital expenditure is accounted for by the renovation of existing buildings (7.2) and investments in the portfolio and Development to hold (7.7 Acquisition and ownership of buildings), in particular.

Taxonomy-aligned Shares of Vonovia’s Business Activities

Review of Substantial Contribution

The obligation to review taxonomy alignment for the 2023 reporting year extends exclusively to activities relating to EU environmental objectives 1 and 2.

Turnover associated with new construction (activity 7.1) is deemed taxonomy-aligned if the relevant buildings have a primary energy demand that is at least 10% below the national standard for nearly zero-energy buildings. Vonovia checks compliance by obtaining an energy performance certificate for each building. The relevant buildings undergo the thermal integrity and airtightness test. Where required to do so, Vonovia determines the global warming potential for each phase of the building life cycle (for buildings with an area of > 5,000 sqm) using a model calculation of life cycle emissions based on emission factors that have been determined for different types of construction.

Turnover generated from the acquisition and ownership of buildings (activity 7.7) is deemed taxonomy-aligned if the buildings constructed before December 31, 2020, have been assigned energy efficiency class A (or better) or, alternatively, are among the top 15 percent of regional or national housing stock in terms of primary energy demand in operation. Vonovia checks compliance by obtaining an energy performance certificate for each building. We base our assessment of the top 15 percent on relevant threshold values for primary energy demand for Germany, Austria and Sweden, which were determined in a recent benchmark study. For buildings constructed after December 31, 2020, the same criteria for substantial contribution to climate change mitigation apply as for new construction (activity 7.1).

Turnover from electricity generation using solar photovoltaic technology (activity 4.1) is treated as a direct climate change mitigation measure in the EU Taxonomy Regulation.

In accordance with Vonovia’s business model, the relevant criteria for determining taxonomy-aligned capital expenditure stem from activities 7.2, 7.3, 7.4, 7.5, 7.6 and 7.7:

At Vonovia, capital expenditure associated with the renovation of existing buildings (activity 7.2) always relates to energy-efficient modernization. Vonovia verifies the required 30% reduction in primary energy demand through energy-efficiency assessments or based on energy certificates. Capital expenditure as part of energy-efficient modernization projects is allocated to activity 7.2. Capital expenditure on heating modernization, charging stations and wall boxes, metering technology and smart metering, and photovoltaic systems is generally treated as a direct climate protection measure and is allocated to activities 7.3, 7.4, 7.5, and 7.6.

Activity 7.7 “Acquisition and ownership of buildings” includes capital expenditure from acquisitions, Development to hold, investments not including energy efficiency measures (e.g., vacant apartment renovations) or other internal expenses that can be capitalized.  These qualify as taxonomy-aligned if the building-related technical valuation criteria are met.

The relevant criteria for determining taxonomy-aligned operating expenses stem from activity 7.7. This is non-capitalized maintenance (usually minor maintenance). In addition to maintenance services provided by third parties, this also includes services provided internally by the company’s own craftsmen’s organization.

Capital expenditure on the fleet (3.3) is not subject to any detailed alignment review. Vonovia’s fleet is gradually being switched to alternative drive systems; at present, only a small number of vehicles meet the required threshold for CO2 emissions. Capital expenditure in connection with the purchase of electrical and electronic goods (1.2) is not subject to any mandatory alignment review in the 2023 reporting year.

Assessing Significant Harm on One or Several EU Environmental Objectives (“Do No Significant Harm”)

In order to avoid significantly compromising adaptation to the effects of climate change (EU environmental objective 2), the EU taxonomy requires that a robust climate risk and vulnerability assessment be carried out for all taxonomy-aligned economic activities. Vonovia uses an IT tool to identify and evaluate physical climate risks for the Group-wide portfolio on a continuous basis using the prescribed climate scenarios (RCP2.6, RCP4.5 and RCP8.5) (see Environmental Issues). The risk assessment is based on scenario RCP4.5, which, according to the United Nations (UNEP Emissions Gap Report 2023), represents the probable increase in the global average temperature that will result from the national contributions to climate change mitigation that have currently been defined and implemented. In this scenario, no material risk has been identified for any of the climate-related hazards up to 2045. Therefore, no adaptation plan is required in accordance with the EU Taxonomy Regulation. As part of the neighborhood strategy, potential adaptations are to be defined at portfolio level in the future and subsequently implemented individually for the properties or neighborhoods for which there are material risks at the corresponding level.

With regard to the sustainable use and protection of water and marine resources (EU environmental objective 3), no criteria need to be assessed for the taxonomy-eligible economic activities for residential building units.

The requirements for transitioning to a circular economy (EU environmental objective 4) are set out in the German Circular Economy Act (KrWG)/national legislation, and are passed on to business partners by Vonovia through the Business Partner Code and the General Terms and Conditions of Contract for Construction Services, as well as being included in framework agreements with waste disposal companies. This ensures that the requirements are implemented for each project. The selected building and construction technology strengthens resource efficiency, adaptability and dismantling capacity, taking into account the requirements set out in the ISO 20887 standard. The photovoltaic systems installed by Vonovia also meet the requirements for preventing significant harm to EU environmental objective 4 on account of their design and service life.

In order to avoid and prevent environmental pollution (EU environmental objective 5), compliance with certain EU directives must be ensured (Appendix C to Annex 1 to the Supplement to EU Regulation 2020/852). Compliance with statutory requirements is defined in Vonovia’s Business Partner Code that all subcontractors and suppliers have to sign. Vonovia has established a toxic materials management system to ensure the safe handling of toxic materials. Among other measures, safety fact sheets and operating instructions are kept for affected products and the company’s own employees are trained on how to handle these products correctly from an occupational safety perspective. Substances of very high concern (SVHC) cannot generally be found in the construction materials used. If these substances are identified in very small quantities in individual cases, Vonovia looks into options for replacing them on an ongoing basis.

Vonovia’s economic activities do not significantly harm the achievement of EU environmental objective 6 (protection and restoration of biodiversity and ecosystems), as Vonovia only builds in designated areas and with a building permit.

Compliance with Minimum Standards at Group Level (“Minimum Social Safeguards”)

We are committed to our human rights due diligence obligations and align our conduct with internationally recognized frameworks such as the OECD Guidelines for Multinational Enterprises, the ILO Core Labour Standards and the UN Guiding Principles on Business and Human Rights.

Vonovia adopts a Group-wide approach to meeting minimum safeguards that address the issues of corruption and bribery, fair competition and taxation in addition to respect for human rights: Comprehensive procedures forming part of the compliance management system, including Group-wide guidelines and complaints mechanisms, have been put in place to prevent and uncover violations (see Combating Corruption and Bribery).

A due diligence process to avoid scenarios in which business activities have negative impacts on people and the environment forms the core of compliance with the minimum safeguards. Taking the OECD Guidelines as a basis, Vonovia has implemented all of the recommended due diligence steps. In the reporting year, we conducted a human rights and environmental risk analysis for our own business area and the supply chain. Further information on the implementation of human rights due diligence at Vonovia can be found in the section Respect for Human Rights.