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 last year. As a result, we continue to consider the risk of ”non-compliance with our climate path” as being associated with an amount of loss of € 5-50 million (2023: € 5-40 million) and a probability of occurrence of 5-39% (2023: 5-39%).  

Risks could also emerge as a result of a ”Significant increase in the CO₂ price”. While a rising CO₂ price has already been reflected in our planning, a further increase in the CO₂ price in view of the national and European climate neutrality targets could lead to higher costs than planned. We have assigned this risk an amount of loss of € 5-50 million (2023: € 5-40 million) and a probability of occurrence of 5-39% (2023: 40-59%).

In the reporting year, we defined a separate risk, “Physical climate risks”, which includes potential losses resulting from chronic or acute effects of increasing climate change. These include an ongoing rise in temperatures and an increase in extreme weather events, such as storms, hail, heavy rain and flooding. These potential losses were previously included in the “Risk of business continuity in disasters/crisis situations”. We have assessed this risk with an amount of loss of € 5-50 million and a probability of occurrence of 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 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.

In the Value-add segment – particularly at our company Vonovia Energie-Service Gesellschaft mbH (VESG) – risks could arise if customer demand were to develop differently than expected, or if market prices were influenced by government intervention. We have assessed this “price risk” as being associated with an amount of loss of € 5-50 million (2023: € 5-40 million) and a probability of occurrence of <5 % (2023: <5%).

With regard to the planned “expansion of renewable energies using photovoltaic systems,” we have once again assessed the risks associated, for example, with rising costs, material availability or changes in regulation, as having a low (€ 5-50 million, 2023: € 5-40 million) amount of loss and a probability of occurrence of 5-39% (2023: 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 € 5-50 million (2023: € 5-40 million) and predict a probability of occurrence of 5-39% (2023: 5-39%).  

“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 noticeable (2023: substantial) amount of loss but believe that they are very unlikely to materialize with a probability of occurrence of <5% (2023: <5%).  

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 potential amount of loss of € 5-50 million (2023: € 5-40 million) thanks to the clearly defined processes and requirements, and consider this risk unlikely to materialize with a probability of occurrence of 5-39% (2023:  5-39%).

“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 potential amount of loss of € 50-180 million (2023: € 150-375 million), although we believe these risks are very unlikely to materialize with a probability of occurrence of <5% (2023: <5%).  

As part of our ESRS reporting, we also report in detail on the financial risk arising from changes to the regulatory framework for rents and tenancy law standards in the “Living at fair prices” section (see also S4 – Company-specific: Living at fair prices).

Governance Risks

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. Due to the smaller year-on-year difference between the interest coupons for existing ESG products and potential capital market refinancing, we have assessed this risk as being associated with a lower amount of loss than in the previous year, namely € 50-180 million (2023: € 150-375 million), with the probability of occurrence remaining constant at <5% (2023: <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”. At present, we have assigned this risk an amount of loss of € 50-180 million (2023: € 40-150 million), but believe that it is very unlikely to materialize with a probability of occurrence of <5% (2023: <5%).  

There is a financial risk associated with possible bribery and corruption incidents. We describe this risk in detail in our ESRS reporting under “G1-3 – Prevention and detection of corruption and bribery”.