ESRS S4 Consumers and End-Users
ESRS 2 SBM-3 – Material Impacts, Risks and Opportunities and Their Interaction with Strategy and Business Model
Material Impacts, Risks, and Opportunities
Within the scope of our materiality assessment, we identified five material impacts, risks and opportunities (IROs) related to consumers and end-users:
- Housing tailored to tenants’ needs
- Reduced tenant turnover through the creation of homes that meet people’s needs
- Improved tenant satisfaction through enhanced accessibility and service quality
- Reduced tenant satisfaction due to limited accessibility and service quality
- Financial opportunity from increased tenant satisfaction and service quality
The actual positive impact “housing tailored to tenants’ needs” affects both our core business and the downstream value chain. Creating homes that meet people’s needs as they age can significantly increase the length of time that people with physical disabilities can stay in their own residences. This extended autonomy positively impacts their living conditions and health as they age. Targeted measures (e.g., accessible housing) enable us to retain existing tenant groups and attract new ones.
Due to demographic changes, the demand for accessible homes is projected to exceed the current supply in Germany by approximately 2 million units by 2035, a gap already noticeable today. As a result, we have integrated a product program for partially accessible modernizations into our investment strategy. Measures include, for example, installing slip-resistant flooring. Given the aging population, accessible partial modernizations and new constructions are long-term components of our strategy and business model (Value-Add and Development divisions).
We already see a significant influence of this material positive impact on our business model, strategy and value chain. This positive impact is closely tied to our strategy, as Vonovia contributes meaningfully to meeting the immense market demand through its accessible partial modernization program. As a result, the program for accessible partial modernizations is integrated into our strategy. Through our actions in this area, we are making a significant contribution to this positive impact. By adapting housing to be accessible, we enable people with physical limitations to stay in their homes much longer, allowing them to live more independently for extended periods. This approach has a direct impact on our tenants, improving their quality of life and fostering greater self-determination.
The associated financial opportunity of “reduced tenant turnover through the creation of homes that meet people’s needs” extends to both our core business and the downstream value chain. Creating homes that meet people’s needs can increase the length of time that older people with physical disabilities can stay in their own residences as well as generate additional rent increases.
This material opportunity has a positive impact on our business model, strategy and value chain. If the creation of homes that meet people’s needs through low-threshold conversions or accessible partial modernizations, reduce tenant turnover and increase supply, turnover costs can be lowered, creating potential appeal to additional tenant groups, such as older individuals and tenants with physical limitations. The reduction of tenant turnover through the creation of homes that meet people’s needs also has the potential to improve Vonovia’s reputation. Demographic changes are driving a high demand for accessible, age-appropriate housing. This trend is expected to further increase demand in the future, positively contributing to our business model. Our measures, including low-threshold conversions and accessible partial modernizations (e.g., the installation of slip-resistant flooring and walk-in showers), are already integrated into our business model and strategy. These measures are actively contributing to the realization of this opportunity and will continue to be expanded in the future.
Currently, we have not identified any financial effects related to this opportunity that could significantly impact our financial position, earnings or cash flows in the next reporting period, nor do we foresee any material risks of adjustments to the carrying amounts of assets and liabilities in our financial statements.
The actual positive impact of “improved tenant satisfaction through enhanced accessibility and service quality” is closely linked to our core business. Regular engagement with tenants through surveys – especially concerning service and product quality – yields positive outcomes. A multi-lingual customer service team and local representatives ensure quick and direct communication, which enhances both service and product quality.
The impact can also be negative, leading to “reduced tenant satisfaction due to limited accessibility and service quality.” Issues such as restricted access, long response or processing times at the central customer service center or the unavailability of caretakers or craftsmen can result in dissatisfaction.
As the rental of homes is our core business, tenant satisfaction has a significant influence on our business model and strategy. We measure tenant satisfaction quarterly and respond to negative trends with targeted measures at the regional and neighborhood levels. We continuously work on improving service quality and implement corresponding measures (see S4-4).
We see this material impact as having a meaningful short-term influence on our business model, strategy and value chain. The impact is directly tied to our strategy, as tenant satisfaction is a key determinant of our company’s success. Our extensive housing portfolio in urban areas, low vacancy rates, and diverse tenant needs require a high level of accessibility, service quality and responsiveness, supported by appropriately trained staff. Our measures play a critical role in determining whether this impact is positive or negative. For example, appropriately trained staff and sufficient personnel resources in customer and residential environment services and technical services contribute to positive outcomes, while a lack of these resources can contribute to negative ones. These measures directly affect individuals, particularly our tenants, whose satisfaction depends on the successful implementation of these efforts.
The negative impact can, in principle, affect all customers. It may occur sporadically, such as when the central customer service department or on-site staff is occasionally less accessible. However, it primarily relates to specific aspects of accessibility and service quality – operational processes – and does not disproportionately affect any particular customer group.
At the same time, there is also a “financial opportunity from increased tenant satisfaction and service quality”. A straightforward, quick, and transparent exchange with customers, alongside improved service and product quality, can boost customer satisfaction, strengthen tenant retention, and contribute to a positive reputation. This higher customer satisfaction also serves as the foundation for selling complementary products and services.
We see this opportunity as having a meaningful influence on our business model, strategy and value chain. Consistently high service quality offers the potential to enhance customer satisfaction, which, in turn, promotes tenant retention and bolsters Vonovia’s reputation. This results in lower vacancy rates for us and, consequently, stable long-term revenue. Our initiatives to improve service quality (e.g., employee training and extended service hours to ensure prompt customer support) are embedded in our business model and strategy. These measures are actively contributing to the realization of this opportunity and will continue to be expanded in the future.
In the short term, we anticipate a potential impact on our business model and value chain due to this opportunity. High levels of customer satisfaction and service quality enhance our reputation and our appeal as an employer. Lower tenant fluctuation also allows us to reduce our fluctuation costs and contribute to rental growth by expanding the supply of attractive housing.
The financial effects related to this opportunity that could significantly impact our financial position, earnings or cash flows in the next reporting period cannot currently be quantified, nor do we foresee any material risks of adjustments to the carrying amounts of assets and liabilities in our financial statements.
Resilience of Our Business Model
The resilience of Vonovia’s strategy and business model is analyzed and evaluated annually as part of risk management. First-level executives below the Management Board are responsible for identifying and assessing risks within their areas during the semiannual risk inventory process. The risk management horizon and the evaluation period extend five years beyond the reporting year, with assessments focusing on net risks.
To evaluate the resilience of our business model in managing key impacts and leveraging significant opportunities, we continuously analyze trends in tenant turnover and customer satisfaction. This analysis has shown that our customer turnover remains consistently low and our customer satisfaction consistently high. Our management platform provides tenants with both a centralized customer service department and local contacts (e.g., caretakers, craftsmen, real estate managers, technicians and landlords), enabling us to address customer needs and mitigate potential dissatisfaction promptly. This ensures that our current measures strengthen the resilience of our business model, with no material risks identified. Additionally, ongoing housing shortages and high demand for age-appropriate housing in urban areas further reinforce the resilience of our business model.
Business Model Alignment
Apartment rental is our core business. This means that customer satisfaction and our ability to influence it positively or negatively through service quality and accessibility and the related financial opportunity are essential to our business model, which also emphasizes the legitimate interests of a private-sector enterprise. Demographic shifts and the resulting increased demand for (partially) modernized apartments (impact: “Homes that meet tenants’ needs”) directly affect our business model. This demand drives our new construction projects and efforts to modernize existing properties. These activities present a financial opportunity to reduce tenant turnover through “Reduced tenant turnover through the creation of homes that meet people’s needs.” Adapting our business model to these demands creates opportunities for future business success.
By managing our key impacts, we also directly influence the living conditions of current and potential tenants. Key impacts such as “Improved customer satisfaction through better accessibility and service quality,” “Reduced customer satisfaction due to limited accessibility and service quality,” and “Housing that meets tenants’ needs” all stem directly from our business model. Accordingly, our strategies center on providing suitable and affordable housing for as many people as possible, building long-term tenant relationships through excellent services and attractive housing options – core elements of our policy.
Target Groups
Our core target group at Vonovia is our tenants in our homes in Germany, Austria, and Sweden. This includes potential rental applicants, buyers of apartments developed by Vonovia or BUWOG, and customers purchasing property-related services (e.g., green energy contracts, insurance and multimedia). The information provided in the ESRS S4 reporting framework generally applies to all (potential) tenants and buyers.
Our customers are not end users of products that could harm their health or increase the risk of chronic illness, nor are they recipients of services that might compromise their right to privacy, the protection of their personal data, their freedom of expression, or their right to non-discrimination. Moreover, they do not rely on detailed and accessible product or service-related information, such as manuals or labels, to avoid potentially harmful use. Similarly, our customers are not end users particularly vulnerable to privacy concerns or the effects of marketing and sales strategies, such as children or financially at-risk individuals. Regarding the impact area of “housing that meets tenants’ needs,” older or physically impaired tenants represent a specific customer group with distinct housing requirements. These needs arise primarily from physical limitations that typically occur with aging. However, we have not identified any significant IROs (impacts, risks, or opportunities) related to the health of this target group.
Our key negative impact, “Reduced tenant satisfaction due to limited accessibility and service quality,” is not systemic but occurs in isolated customer incidents. These incidents may stem from temporary factors, such as short-term staff shortages, leading to a decline in service quality that affects only individual cases or a small portion of the overall customer base.
Our positive impact of “Housing that meets tenants’ needs” is achieved primarily through the accessible expansion and renovation of homes for individuals with mobility limitations. This primarily benefits older tenants. Our positive impact of “Improved tenant satisfaction through enhanced accessibility and service quality” is realized through our centralized (multilingual and digital) and decentralized service structures, benefiting all of our tenants.
Significant opportunities exist in increased customer satisfaction and service quality, as well as in reduced tenant turnover through the creation of homes that meet people’s needs, especially for older individuals. This enables us to positively influence our tenants’ living conditions and satisfaction.