New report on the EU Social Taxonomy published

CBRE’s Social Value Snapshot is poised to support real estate investors and asset managers navigating the emerging EU regulation on the ‘S’ of ESG.

The EU taxonomy is a classification system which establishes a list of environmentally sustainable economic activities. The taxonomy aims to help scale up sustainable investment across Europe. The extension of the existing taxonomy to include social impact factors was announced in July 2021, causing much speculation as to the scope of benefits covered by the taxonomy and the kinds of reporting methodologies that would be put forward.

The report, published this week, proposes three objectives for a social taxonomy:

1) Decent work (including supply chain workers)

2) Adequate living standards and wellbeing for end-users

3) Inclusive and sustainable communities and societies

The report also outlines a range of sub-objectives such as ensuring 'Living Wages' under the 'Decent work' objective. As expected, this report suggests the social taxonomy may adopt a similar approach to the existing taxonomy, providing screening criteria for different sectors, which are classified as either 'substantial contribution' or 'Do No Significant Harm' (DNSH). The next steps for the Commission will include defining the substantial contribution and DNSH criteria for the social taxonomy.

CBRE welcomes the direction of travel set out by this report and is actively working to shape our support for clients based on this new information. Although this report signals a significant upcoming change in EU regulation with no direct impact on the UK’s legislation, any business operating across Europe is likely to want an approach that works across all their investments, and so will seek to ensure their ESG strategy aligns with the social taxonomy.

The fact that proposals for the social taxonomy have appeared several years after its environmental equivalent is further evidence that the social pillar of ESG has lagged behind the ‘E’ and ‘G’, partly because of challenges stemming from the definition, scope and measurement of these considerations. Yet the built environment has a vital part to play in improving quality of life and creating long-term value for society. As a result, CBRE has invested heavily over the past few years in understanding and measuring the social impact of real estate is. We have now created a social value team within the ESG Consultancy business and developed a Social Value Snapshot tool, which will be able to help clients understand the proportion of their investments that comply with this emerging regulation.

This tool measures buildings against ten key benefits that communities gain from their built environment. These include improved health and wellbeing, decent jobs and economic growth, and inclusive and sustainable communities. The scoring of each of these benefits depends both on the asset performance and local conditions, allowing the local context to inform the perceived value that the asset brings to its community. Once this baseline is established, the tool is then able to identify opportunities that can deliver more value to communities and drive better performance across client investments.

We aim for the Social Value Snapshot to embed financial proxies into its calculations, thereby translating social benefits into the language of business and supporting inflow of capital into funds that deliver both financially and socially.

To discuss CBRE’s social value offering further, please get in touch here.