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The Taxonomy Revolution: Changing Real Estate through Green Finance

The European Taxonomy provides a definitive classification of what constitutes a green activity, significantly influencing the construction sector.

I. European Taxonomy and Sustainable Finance Disclosure Regulation (SFDR)

The European Taxonomy, a landmark regulation established in 2020, serves as a classification system for economic activities that have a positive environmental impact. It's a critical tool that guides investments towards six essential environmental objectives:

  • Mitigation of Climate Change: Encouraging activities that reduce greenhouse gas emissions and enhance resilience to climate change.

  • Adaptation to Climate Change: Supporting measures that increase adaptability to the adverse impacts of climate change.

  • Sustainable Use and Protection of Water and Marine Resources: Promoting the responsible use of water resources and protecting marine ecosystems.

  • Transition to a Circular Economy: Facilitating the shift towards an economy that emphasizes recycling and minimizes waste.

  • Pollution Control: Encouraging practices that prevent or reduce pollution.

  • Protection and Restoration of Biodiversity and Ecosystems: Supporting activities that conserve and restore natural habitats.

Not all these objectives are currently in effect, but the gradual unfolding of this regulation will resonate on a global scale.

Complementing the European Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR) introduces three fund classifications:

- Article 6: Products not promoting environmental/social characteristics.

- Article 8: Products promoting environmental/social characteristics with good governance.

- Article 9: Products pursuing a sustainable investment objective.

These classifications align with the European Taxonomy, enhancing transparency in sustainability risks and aligning investments with broader environmental protection and sustainability goals. Effective since March 10, 2021, the SFDR represents a significant step in emphasizing the EU's commitment to sustainable finance, bridging the gap between financial products and the overarching objectives of the European Taxonomy.

This alignment of financial regulations with environmental goals represents a contemplation of our global responsibility. It fosters innovation and transformation in the financial landscape, urging collaboration between governments, industry, and civil society. The European Taxonomy and SFDR are more than mere regulatory frameworks; they compel us to reshape our financial models to be more socially, environmentally, and economically sustainable, paving the way for a future where investments are guided by a holistic understanding of sustainability.

II. Interconnected Objectives in Construction

The taxonomy establishes precise criteria for what is considered a "green activity" in various sectors, including construction. It sets clear standards for what is deemed sustainable and environmentally friendly. Here's how it impacts various aspects of construction:

New Building Construction

Buildings must be 10% more energy-efficient, reflecting a commitment to reducing primary energy demand and mandatory air-tightness testing for buildings larger than 5000 m2. The taxonomy also mandates the disclosure of the building's life-cycle global warming potential, fostering innovation and transformation in construction practices.

Renovation of Existing Buildings

The taxonomy requires an enhancement of at least 30% in energy performance during renovations, leading to a substantial reduction in the building's energy consumption. Beyond energy efficiency, the taxonomy takes broader environmental considerations into account during renovations. This encompasses circular economy practices, such as reusing existing materials or recycling demolished materials, as well as biodiversity protection.

Professional Services Related to Energy Performance

This category encompasses services such as technical consultations, energy audits, and energy modeling. These services go beyond mere energy efficiency as they delve into more intricate and diverse aspects of energy management. They must be directly linked to improving energy performance, thus contributing to global objectives.

Installation, Maintenance, and Repair of Instruments and Devices

This includes the installation of smart thermostats and energy management systems, revolutionizing the way we live and work, resulting in energy savings, reduced costs, and a lower carbon footprint. The taxonomy establishes criteria to ensure that activities related to the installation, maintenance, and repair of these instruments and devices do not significantly hinder other environmental objectives.

The EU Taxonomy's approach to the construction sector is not punitive but strategic. By leveraging competition and defining clear criteria for sustainable activities, it provides transparency that guides investors, consumers, and industry players, paving the way for constructing and managing buildings more sustainably.

III. Challenges and Opportunities in Thailand's Green Taxonomy

The model of taxonomy is extending globally, reflecting the financial world's verification. Thailand's green taxonomy, published at the end of 2022, marks a significant step towards a sustainable financial landscape. While not directly impacting the construction sector, it implicitly influences it through the energy sector. Defined as a "Green Taxonomy," it focuses on environmentally sustainable economic activities, providing an opportunity to rethink how various entities, from bond issuers to governments, make informed investment decisions promoting a low-carbon economy. The Bank of Thailand's definition of this green taxonomy as a "guide for climate-aligned projects and assets" fosters comprehensive reflection on current challenges, urging sector participants to innovate and collaborate.

The exploration of European and Thai taxonomies compels us to reshape our models to be more socially, environmentally, and economically sustainable. The EU's detailed approach, particularly impacting the construction sector, serves as a model for guiding investments and industry practices towards a greener, more sustainable future.

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