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Decarbonisation strategy: Specific CO2 reduction target for 2024 as part of the path to climate neutrality by 2045
Transparent targets for customer satisfaction, employee satisfaction and governance
Framework established for ESG financing
Calls for cross-sector emission trading system, energy subsidy for people with low incomes and pragmatic solutions in the debate about a CO2 levy
In May 2021, LEG presented the first aspects of its Sustainability Agenda 2024, which serves as a starting point for ongoing development in terms of environmental, social and governance (ESG) issues. The company today provided further details on its ambitions, targets as well as milestones and published a framework for ESG financing. At the end of 2020, the company had already incorporated specific short-term and long-term ESG targets. All targets can be measured and verified and are integrated into the remuneration system for the Management Board and the second management level.
“We want our buildings to be climate neutral by 2045, while also continuing to strengthen our social responsibility for affordable housing. We have deliberately made our sustainability targets transparent, so that our performance is measured against our ambitions. Satisfied customers, employees and investors who all support this path are essential to successful sustainable development in the sector as a whole. Policy frameworks should minimise social hardship for individuals and bolster efficiency and technological advances. Market-based instruments, such as the cross-sector expansion of European emission trading, do more to combat climate change in the building sector than any new building regulation,” said Lars von Lackum, CEO of LEG Immobilien SE.
Three-point plan for climate neutrality by 2045
In terms of the environment, LEG is focusing mainly on improving the company's climate footprint, making use of energetic refurbishment, energy transition and changes in tenant behaviour to achieve climate neutrality by 2045. LEG is planning to invest up to EUR 500 million in related measures by 2024 and about EUR 1.5 billion by 2030.
One key milestone to achieving climate neutrality is the 10% reduction in CO2 by 2024 from
36.7 kg CO2e/m² to 33 kg CO2e/m². LEG is the only company in the sector with a binding long-term climate policy and compulsory medium-term reduction targets. The starting point for the reduction is based on actual data as opposed to extrapolations from energy performance certificates, which is the more commonly used approach in the sector.
LEG has a good track record of energy efficiency improvements. Since 2017, the company modernised at least 3% of the portfolio every year as part of the LEG modernisation programme, boosting efficiency by an average over 30%.
In addition to the return on investment and affordability for customers, LEG will be going forward and make significant CO2 reductions a further key aspect of planning and selecting modernisation projects. The company will make use of the new BEG subsidies (Federal funding for efficient buildings) and regional grants to ensure affordability of the apartments after modernization.
Germany’s transition to green heating energy is a vital component in achieving climate neutrality for the real estate sector and for LEG; particularly the contributions of green district heating and green power will be critical. The company assumes that just 10% of LEG’s portfolio will be heated by gas in 2045. Compared to the overall market, the company already benefits from a very environmentally friendly energy mix. District heating currently accounts for about 30% of heating energy. Most of the portfolio is supplied by efficient gas heating. Use of heating oil is minimal. From 2030 onwards, green energy will increasingly replace the currently still efficient and modern gas-fired heating systems at LEG.
LEG’s own biomass power plant in Siegerland is a unique differentiator for the company. If fully accounted for, it would lower LEG’s carbon footprint by 18% – however, the present regulatory framework does not allow for such offset mechanisms. The biomass plant feeds green electricity into the general grid, corresponding to the annual requirement of around 45,000 LEG households. This point highlights the fundamental importance of cross-sector collaboration between the energy and the building sectors in achieving Germany’s climate goals.
Changes in tenant behaviour
Achieving climate targets in the building sector also requires tenants to change their patterns of consumption. Increasing digitalisation of properties will be a key driver of that change. Real-time consumption data provided by smart meters and information on weather conditions and temperatures can show customers how they can benefit from more efficient usage. Access to this data and an understanding of the key correlations should be as practical as possible, for example using apps and gamification approaches.
The industry and all companies are still at an early stage regarding this process. Many open questions about technological progress and data protection still need to be resolved.
Social commitment: Responsibility for customers, employees and municipalities
With social housing accounting for about a quarter of LEG’s portfolio and an average rent of EUR 6.03 per square metre, the company takes its responsibility for “affordable housing” seriously. Customer satisfaction takes top priority at LEG including taking into account the customers’ financial situation and a clear commitment to good value for money.
52% of LEG customers currently wish for faster service or for their issues to be resolved even more quickly. Accordingly, LEG’s target for 2021 is to reduce iteration calls at the Central Customer Service by 15%. The company considers this a strong indicator of the speed and quality of its services.
From 2022 onwards, the company will introduce a comprehensive customer satisfaction index (CSI) that incorporates all aspects of customer satisfaction, i.e. satisfaction with services, the product, the reputation and value for money. A sector top score of over 70% is targeted for 2025.
When it comes to employee satisfaction, the company wants to achieve the current high trust index value of 66% again in 2024. Alongside five other businesses, the company has been named one of the “Best Employers in North Rhine-Westphalia”.
LEG is also continuing to expand its non-profit foundation work. The “Your Home Helps” foundation established at the end of 2019 provides support exactly where it is needed. In 2020, the focus was on coronavirus aid projects. In 2021, it will focus on sustainable social work with its own social workers and experienced partners in the neighbourhoods. Since the start of the year, the number of projects has grown by 14 from 28 to 42.
LEG advocates pragmatic and fair climate protection solutions
Given its work in the area of affordable housing and its experience with numerous social involvement projects, LEG is calling for better state support for tenants in homes that have undergone energy efficiency upgrades. Direct financial assistance along the lines of housing benefit – such as a type of energy allowance – could increase acceptance of climate protection measures and provide tenants with financial protection beyond housing companies’ hardship clauses. These allowances could be funded through income from the CO2 levy.
LEG also advocates pragmatic and fair solutions to questions about the CO2 levy. The company understands that social aspects mean that the “polluter pays principle”, where 100% of the CO2 price is payable by the tenant as the consumer, is politically discussed. A 50% share payable by the landlord, as planned by LEG, however, would likely prove too much for many small landlords. The idea of charging more to landlords of less energy efficient buildings is also counterproductive. This would disproportionately increase the incentive to first and foremost modernise these apartments. Yet these apartments are exactly those where people who generally can afford only particularly affordable homes live resulting in a risk of gentrification of affordable neighbourhoods. On top of this, refunding tenants with decentralised heating systems, such as gas central heating, would involve unacceptable amounts of red tape.
Good corporate governance: low ESG risk rating is a strong indicator
As an indicator of good corporate governance, LEG is again seeking a strong ESG risk rating from the experts at Sustainalytics in 2021 (2020: 10.4). The rating reviews good corporate governance by looking at about 50 individual aspects, therefore fully covering the “G” element.
ESG financing framework published
Together with the deep-dive on its ESG strategy, LEG Immobilien SE is presenting its sustainable financing framework. The company is the first listed German housing company that covers in its framework not only the ICMA Green Bond Principles and the EU taxonomy but at the same time also high social requirements placed on the housing industry. The framework underlines LEG’s commitment to balancing environmental aspects, social as well as customer focus and profitability.
The issuance of fixed-income securities, bonds, convertible bonds as well as sustainable loan financing is permitted under the framework.
LEG’s framework focuses on sustainable projects related to affordable housing/social housing (including the new-build program with a total of around 500 units p.a. from 2023 to create more affordable), energy efficient homes, certified environmentally friendly buildings, high standards for energetic refurbishment, community engagement, the use of renewable energy and clean transport options.
The framework has been certified by the ESG rating agency Sustainalytics. LEG’s ESG framework and the second party opinion (certification by Sustainalytics) can be viewed online at https://ir.leg-se.com/en/investor-relations/creditor-relations
Susanne Schröter-Crossan, CFO of LEG Immobilien SE commented: “Our sustainable financing framework creates a platform to make sustainable financing a keypart of our future financing mix. As a leading provider of affordable housing, it was particularly important to us to include into the framework social housing and social projects as these are an integral part of our strategy.”
With around 145,000 rental properties and approximately 400,000 residents, LEG is one of Germany’s leading listed housing companies. The company has seven branch offices in its heartland in North Rhine-Westphalia and is represented by local personal contacts at selected locations in other western German states.
LEG generated income of around EUR 861 million from its core rental and lease business in the 2020 financial year. As part of the new construction campaign it launched in 2018, LEG wishes to make a social contribution towards creating both privately financed and publicly subsidised housing and to build or acquire at least 500 new apartments per year from 2023 onwards.
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To the extent that we express forecasts or expectations or make forward-looking statements in this document, these statements can entail known and unknown risks and uncertainties. These statements reflect the intentions, opinions or current expectations and assumptions of LEG Immobilien SE. The forward-looking statements are based on current planning, estimates and forecasts, which LEG Immobilien SE has made to the best of its knowledge, but that are not a statement on their future accuracy. Actual results and developments can therefore differ materially from the expectations and assumptions expressed.