The expansion of sustainability reporting will significantly transform many companies. This is the conviction of Deloitte partner Rolf Künemann and Instone's CEO, Kruno Crepulja. „The mere fact that companies must define their goals, key parameters, and measures to achieve those goals, and inform the public will have a substantial impact“, Künemann says in an interview with Börsen-Zeitung. „It will then be up to the reader to decide whether a company is considered good or not.“

Currently, only about 500 companies in Germany fall under the reporting obligation, which represents a very small segment of the overall economy. However, with the Corporate Sustainability Reporting Directive (CSRD), this number is expected to rise to an estimated 15,000. A significant shift will occur in 2026 when, for the first time for the fiscal year 2025, companies or corporations will be required to report on environmental, social, and governance (ESG) factors if they exceed thresholds in two of three criteria: total assets (over 25 million euros), revenue (over 50 million euros), and employee count (over 250). Later, smaller capital market-oriented companies and firms from third countries with EU connections will also be included.

The details of the CSRD are outlined in the European Sustainability Reporting Standards (ESRS). „The CSRD goes beyond the previous requirements for publicly traded companies and the taxonomy regulation“, notes Künemann. „It expands non-financial reporting.“ The companies required to report will depend on information from their suppliers concerning their value chain, with some suppliers needing to collect data indirectly as well. „A significant wave of reporting is coming for these companies,“ explains Künemann, who specialises in auditing and advising real estate firms at Deloitte Germany.

The sustainability report is part of the management report, and must initially be audited by a certified public accountant, with limited assurance. „In the future, ESG reporting will hold the same significance as financial reporting“, emphasises Künemann. Instone's CEO Crepulja describes this development as „the greatest change in decades.“

The real estate sector faces unique challenges, as it is significantly more fragmented than industries such as chemicals and automotive. In addition to large asset holders, many small and medium-sized real estate firms must now prepare for a „demanding task“, says Crepulja.

„Many companies have already started their journey“, Künemann reports from his professional experience. However, some firms, particularly certain project developers, are not yet prepared. „The process always begins with a materiality analysis“, explains Künemann, which serves as the foundation for implementing the CSRD, and significantly influences the scope of reporting. This can be considerable, as Instone's example illustrates: 80 out of approximately 200 pages of its 2023 annual report (excluding appendices) are dedicated to sustainability. „With the CSRD, there will be even more“, says Crepulja.

Instone currently reports on ESG voluntarily, and sees itself as a pioneer in the industry. „In future, ESG will be a key success criterion“, notes the CEO. „The new regulation creates transparency, which we welcome.“

Deloitte auditor Künemann believes it is a mistake to focus solely on the risks and costs of regulation: „The new requirements will spur innovation, such as low-emission building materials," he says. "This is an opportunity for companies to reposition themselves and stand out from the competition.“

Crepulja points to another aspect, noting that "the regulations will accelerate digitalization.“ There will be a substantial need to gather and process vast amounts of information about materials, and supply and value chains. Consequently, the digital use and processing of information about a construction project will increasingly prevail.

The preparation of the ESG report at Instone involves five full-time employees, along with external service providers. With the CSRD, this number will double to ten, according to Crepulja. For comparison, the developer employs a total of 468 people. „But reporting is just one element“, clarifies the CEO. „The critical factor is that ESG is integrated into project planning.“ This involves considerations such as material selection, energy supply for neighbourhoods, mobility concepts, biodiversity, social community spaces, and inclusion. „It takes time, but it's a worthwhile investment.“

At the project level, about 30 employees at Instone are engaged with ESG issues. The CEO points to a construction project in Frankfurt, where the waste heat from a nearby data center is utilised for the new neighbourhood's heating: „The investor, a large pension fund, is thrilled with this approach," he says.

Crepulja believes that those who lead in ESG will find it easier to market their construction projects. Investors are interested in acquiring projects with high ESG standards, since they also need to report on their sustainability. They are willing to pay a premium for high sustainability. „Energy-efficient properties are more stable in value, especially due to the rising CO2 levy“, adds Künemann.

However data collection poses a challenge, particularly regarding emissions in the supply chain. Künemann suggests that external service provider data can be used, with some estimates being relied upon. However, companies need to verify the appropriateness of the estimation methods used. The Deloitte expert expects data quality to improve significantly in the coming years, not least due to the implementation of artificial intelligence.

The search for personnel is just as challenging as in other sectors, reports Crepulja. Thus far, ESG staff primarily come from established professions such as architects, engineers, and data analysts. Existing professions are increasingly being trained in ESG, but a distinct profession for ESG experts will gradually emerge. At Deloitte, the ESG teams are diverse, Künemann notes: „In the past, we primarily hired auditors in our auditing division. Today, we also employ environmental economists and chemists.“