The EU’s EPBD and CSRD sustainability regulations usher in a new era for building

In 2024, sweeping new building industry sustainability regulations in the European Union (EU) are moving the crusade for a carbon-free built environment away from aspirational goals to a legal requirement for hundreds of millions of people. This change will mean that sustainability analytics in the AECO (architecture, engineering, construction, and operations) industry are rapidly transitioning from being a specialized, niche form of knowledge to becoming a baseline competency required to alter the built environment. It also foregrounds a dramatically increased need for new tools and techniques to organize and analyze the data that verifies building performance.

The Corporate Sustainability Reporting Directive (CSRD) is an EU mandate that requires large corporations to report on the environmental and social impacts of their business practices. The Energy Performance of Buildings Directive (EPBD) sets a goal of decarbonization of building stock in the EU by 2050 to be achieved through mandatory improvements of the least energy-efficient buildings.

For the EPBD, AECO companies won’t have to hire specialized consultants, but they “will need to have the right people with the right expertise to explain the requirements set by the EPBD, including minimum energy performance standards for non-residential buildings, zero-emission requirements for new buildings, lifecycle assessments, and digital reporting requirements,” says Adrian Joyce, Secretary General of Efficient Buildings Europe, an industry-based association advocating for a more energy efficient and sustainable built environment. This essentially mandates analytical sustainability and performance regimens across the board.

Hardware and software tools (such as IoT sensors, smart metering, etc.) will be central in delivering against these objectives and digital design tools such as Autodesk Revit will be irreplaceable. “Building information modeling is a tool that companies could use to track data across the lifecycle of a project,” Joyce says.

The ideal data platform for the execution of the EPBD and CSRD is a full digital twin with visibility into granular building performance data points. This means tracking the carbon footprint per rentable space, comparing occupancy rates to the percentage of energy provided by renewable sources, evaluating building envelope performance vs. occupancy rates, etc. “To cut the cake in different ways,” says Elise Grosse, Chief of Sustainability at Sweden-based global architecture firm Sweco.

The most ambitious element of the EPBD is its focus on existing buildings. For legacy non-residential buildings, the policy mandates gradual introduction of minimum energy performance standards, targeting the worst-performing buildings for energy efficiency renovations. By 2030, EU nations will need to renovate the worst-performing 16% of their non-residential building stock. By 2033, the worst-performing 26% will require renovations.

Residential buildings are afforded more flexibility. Each country will adopt its own plan to reduce the average energy use of its residential stock by 16% by 2030 and 20% by 2035; 55% of the reduction must come from the worst-performing housing stock. New building mandates are even more stringent. All new construction must have net-zero onsite emissions by 2030. Lifecycle emissions will be calculated for structures built starting in 2030.

These regulations oblige national governments to integrate the EPBD into their own laws and building codes, making them enforceable. “Failure to comply with its provisions could result in the failure to obtain a building permit,” says Piotr Mokrzanski,Head of ESG Due Diligence at Arcadis in Poland. The EPBDencourages robust data collection and sharing, and member states will be responsible for establishing national databases that track the energy performance of buildings.

So far, adoption of these measures by member countries has been uneven. France, the Netherlands, and Denmark are furthest ahead, with legal obligations to renovate the worst-performing buildings, financial support structures, and a long track record of reducing the carbon footprint of the AEC supply chain.

Approximately 50,000 companies will have to disclose the risks and opportunities their business practices pose in accordance with social and environmental factors. Companies must begin reporting in 2024 so that reports can be published in 2025.

Regulators and sustainability experts compare this new reporting structure to basic financial disclosures as governed by the U.S. Securities and Exchange Commission, providing market transparency and public accountability. It’s meant to discourage greenwashing and to add carbon emissions and climate resiliency to the list of factors that make or break a business model. “Financing people and the investors are starting to ask about the roadmap to carbon neutrality, energy performance, and climate adaptation risk, because they don’t want their portfolio to look dirty,” says Grosse.

EU companies have been required to do some social and environmental reporting since 2014, but with the new regulations, more businesses are required to take this step. With some additions, large firms listed on EU regulated stock exchanges are accountable, and reports can be audited.

Per the new law, companies will have to disclose:

• Pollution prevention strategies

• Internal incentives to reduce carbon emissions

• Biodiversity ecosystem safeguards

• Labor and human rights practices

• Consumer and end-user protections

• Anti-corruption measures and more

National governments will set penalties for noncompliance, which could include fines or public disclosure.

CSRD reports must describe business operations using the principle of “double materiality.” This means reporting on inside-out factors that may affect the world beyond the corporation (how manufacturing by-products could pollute a local watershed, for example) as well as outside-in factors that influence operations of a corporation (for instance, how climate change-induced disasters could create price spikes for a key manufacturing component). For AECO firms and building owners, this means disclosing the carbon performance and social and environmental impacts of their own products: the buildings they design, build, and manage.

“CSRD has a huge impact on our projects because they are part of the reporting system for our customers,” says Grosse, who often leads Sweco’s green building consultancy efforts.

The complexity and scope of CSRD reporting can make it difficult for smaller firms. It’s a data-intensive process, including 12 standards, 82 reporting requirements, and 500 KPIs, potentially vacuuming up hundreds of hours. “In order to achieve this, companies employ additional specialists and managers or create an internal team responsible for this area,” says Mokrzanski. “There are many tools available on the market to facilitate and improve the collection of the necessary data. The CSRD topic is relatively new, so the tools available are constantly being improved.”

Underscoring both of these new regulations is the UN’s Chaillot Declaration, representing the first time a UN agreement specifically determines a roadmap to tackle the carbon emissions coming from the built environment. This statement of values, which is not an enforceable regulation, has been agreed to by 70 nations, including the United States, and acknowledges that the built environment is responsible for almost half of global carbon emissions and that operations of buildings alone make up 27% of emissions.

The declaration denounces the “over-exploitation” of natural resources for construction material manufacturing and advocates for mandatory building and energy codes (like the EPBD), lifecycle assessment of emissions, workforce training, and new tools and regulatory frameworks to collect and share data. The newly announced Intergovernmental Council for Buildings and Climate (ICBC) will monitor progress toward the goals of the declaration.

The declaration encourages national governments to reduce carbon emissions where they are most plentiful. “The Chaillot Declaration marks a significant milestone as one of the United Nations’ first direct acknowledgments of the essential role buildings play in combating climate change by addressing carbon emissions within the building sector,” says Joyce. “This holistic approach underscores that to truly reduce the climate impact of the built environment, efforts must go beyond operational energy use like heating and cooling and address the emissions associated with every stage of a building’s lifecycle—such as material production, construction, waste, and recycling.”

Legal mandates like the EPBD present a very different type of sustainable building regime compared to voluntary rating systems that are most common in the US, such as LEED. These rating systems primarily work as “communication and brand labels,” working to differentiate specific buildings, says Grosse. Conversely, regulatory statutes like the EPBD function to unify buildings at a higher level of energy performance.

The EPBD also includes a much wider range of buildings, beyond the major civic monuments most likely to be able to shoulder the upfront cost of the voluntary rating system and to leverage the subsequent marketing advantage. “The voluntary nature of these programs is showing its limitations, with the renovation rate stagnating at approximately 1% across the EU,” says Joyce.

In the intermediate to long term, the need for financing and support is counterbalanced with lower day-to-day operational costs once renovations are complete. This longer-term payoff means favorable interest rates from banks. “Banks are more willing to make green loans for energy efficiency renovations,” says Grosse. “The dots are being connected.” It also means better climate resilience in the face of worsening disasters and an increase in building value. The alternative is untrammeled carbon emissions, which is ultimately “really, really expensive,” she says. “Now the money cares about those things.”