Industry Mapping: SFDR PAI, GRESB Real Estate Standard and Reference Guide (2025), EET Template, TCFD (2021), RICS ESG data list for real estate valuations (2024)
Definition:
"Inefficient real estate assets are the value of real estate assets built before 31/12/2020 with EPC C or below plus the value of real estate assets built after 31/12/2020 with PED below NZEB in Directive 2010/31/EU divided by the value of real estate assets required to abide by EPC and NZEB rules (ref: SFDR).
A Nearly Zero-Energy Building (NZEB) is defined as a building that has a very high energy performance, while the nearly zero or very low amount of energy required should be covered to a very significant extent by energy from renewable sources, including energy from renewable sources produced on-site or nearby.
Primary Energy Demand (PED) is defined as the total energy from a raw energy source that is converted into consumable energy.
Energy Performance Certificate (EPC)."
Additional Guidance:
This indicator calculates the proportion of the vehicle’s total asset value (AUM) considered energy-inefficient, as defined under SFDR and related EU legislation. When reporting:
• For mixed-use assets where only part meets the ‘inefficient’ definition, include only the proportional value of that portion in the numerator;
• Use recognised data sources such as EPC registers, national building databases, and technical building documentation;
In line with ARESI KPI 7, where EPCs are missing or outdated, managers may use EPC proxies or CRREM pathways, provided the methodology is applied consistently across the portfolio.
This indicator is one of the six environmental factors considered most relevant for underwriting (see INREV (2025) Integrating environmental considerations in real estate underwriting paper).
"Note 1: The definition of “inefficient real estate assets” follows SFDR Annex I. This means that even small deviations from NZEB performance after 31/12/2020 may technically classify an asset as inefficient. However, in practice, managers may consider applying materiality thresholds (e.g. EU Taxonomy requirement of 10% below NZEB for new construction) when interpreting borderline cases, provided the approach is clearly disclosed. This ensures proportionality and avoids classifying assets as inefficient based on negligible variations.
Note 2: For non-EU markets where NZEB does not exist, apply the closest national equivalent (e.g. UK MEES, Future Homes Standard). Reference ARESI KPI 7, which allows EPC proxies and CRREM pathways where EPCs are missing.
Note 3: In jurisdictions where EPCs are not available or not mandatory, managers should apply equivalent national standards or other credible documentation (e.g. energy performance certificates, technical reports, CRREM benchmarks). Where no equivalent data is available, disclose the absence of data and explain the alternative approach.
Note 4: This metric supports the assessment of regulatory transition risks, particularly in the context of EU Taxonomy alignment, SFDR reporting, and climate-related financial disclosures.
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