A Green New World: How the Real Estate Sector is Working with Sustainable Financing in Regard to the EU Taxonomy

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DEGREE PROJECT IN FINANCE, REAL ESTATE AND FINANCE FIRST CYCLE, 15 CREDITS STOCKHOLM, SWEDEN 2021

A Green New World

How the Real Estate Sector is Working with Sustainable Financing in Regard to the EU Taxonomy

SANNA BACKENROTH CASPER LINDQVIST

KTH ROYAL INSTITUTE OF TECHNOLOGY

SCHOOL OF ARCHITECTURE AND THE BUILT ENVIRONMENT

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Title

Author(s) Department Trita number Supervisor Keywords

A Green New World – How the Real Estate Sector is Working with Sustainable Financing in Regard to the EU Taxonomy

Sanna Backenroth and Casper Lindqvist Real Estate and Construction Management TRITA-ABE-MBT-21370

Kent Eriksson

EU Taxonomy, sustainability, sustainable finance, real estate finance

Abstract

The EU Taxonomy is a new regulation produced to set a European standard for sustainable investments and to allocate capital for a sustainable transition. The Taxonomy aims to regulate several sectors, one of which is the real estate sector. Due to it functioning as a classification system, the EU Taxonomy will play an essential role for companies seeking financing. This thesis explores how Swedish and Baltic real estate companies intend to work with sustainable finance given this new regulation. Semi-structured interviews were conducted with companies within the real estate sector and government agencies from Sweden and the Baltic countries, in order to get a holistic view of the situation in these regions. Through research it has been found that the EU Taxonomy will continue to encourage the work with sustainability for companies even though there are some uncertainties with the regulation as of now. Current financial instruments, such as green bonds, are likely to continue to be emitted but will probably be connected with the EU Taxonomy. New financial products will be developed with the help of the Taxonomy. There are however differences in attitudes and actions regarding sustainable financing in Sweden and the Baltics. Sweden has come further with green financing, but the interest is high in the Baltics and sustainable financing is likely to evolve in the region in the near future. The research finds that there is a concern that smaller companies will have difficulties to keep up the pace of

sustainability given the Taxonomy, especially if they recently have begun their work with sustainability. Even though the EU Taxonomy has received criticism for not including green building certifications, the general attitude is positive in that the Taxonomy will imply a common and cross-border definition of the term “sustainability”.

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Titel Författare Institution Trita-nummer Handledare Nyckelord

Du sköna gröna värld – Hur fastighetssektorn arbetar med hållbar finansiering med hänsyn till EU-taxonomin Sanna Backenroth och Casper Lindqvist

Fastigheter och Byggande TRITA-ABE-MBT-21370 Kent Eriksson

EU-taxonomi, hållbarhet, grön finansiering, fastighetsfinansiering

Sammanfattning

EU-taxonomin är ett nytt regelverk framtaget för att sätta en europeisk standard för hållbara investeringar och allokera kapital för en grön omställning. Taxonomin syftar till att reglera flera sektorer, varav fastighetssektorn är en av dem. Genom att fungera som ett klassificeringssystem så kommer EU-taxonomin att spela en central roll när företag ska finansiera sig. I denna uppsats undersöks hur svenska och baltiska fastighetsbolag kommer att arbeta med hållbar finansiering givet detta nya regelverk. Uppsatsen innehåller semistrukturerade intervjuer med fastighetsbolag och myndighetspersoner från Sverige och Baltikum för att få en överskådlig bild av situationen i nämnda regioner. Studien finner att EU-taxonomin kommer driva på hållbarhetsarbetet hos företag även om det initialt råder vissa oklarheter med regelverket. Befintliga finansiella instrument såsom gröna obligationer lär fortsätta emitteras men kommer troligtvis kopplas samman med EU-taxonomin. Nya finansiella produkter kommer att utvecklas med hjälp av taxonomin. Det finns emellertid skillnader när det kommer till hållbar finansiering mellan Sverige och Baltikum. Sverige har kommit längre vad gäller grön finansiering men intresset är högt i Baltikum och gröna finansieringslösningar lär växa i regionen inom en snar framtid.

Undersökningen finner att det finns en oro för att företag av mindre storlek kommer att ha svårigheter att följa med på hållbarhetsresan i linje med taxonomin, särskilt om de nyligen påbörjat sitt hållbarhetsarbete. Trots att taxonomin har fått kritik för att inte inkludera

miljöcertifieringar så är den sammantagna attityden positiv eftersom att EU-taxonomin kommer innebära en gemensam och gränsöverskridande definition av begreppet “hållbarhet”.

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Acknowledgements

First and foremost, we want to express our sincere gratitude to Daniel Pergeman and Lovisa Strid from Swedbank and to our supervisor Kent Eriksson from KTH Royal Institute of Technology. Without your continuous feedback and encouragement, we would not have been able to achieve the same results and standard of our thesis. Thank you!

This thesis has been written together with Swedbank’s departments of Sustainable Lending and Group Sustainability who has been helping us with our research question, data and contact leads.

Thanks to your guidance and help throughout this journey, it has gone smoother than we could ever have imagined.

We would also like to thank the participating companies and government agencies for all of their valuable information and contributions to our project.

With this bachelor’s thesis, we conclude our three years at KTH Royal Institute of Technology.

We want to express our gratitude to our wonderful classmates and teachers that have made these three years an unforgettable time. It has been wonderful and we look forward to what the future has to offer.

Sanna Backenroth Casper Lindqvist Stockholm, June 2021

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Definitions

Energy Certificates

BREEAM: A sustainability assessment method for infrastructure and buildings.

BREEAM-SE: A green building certification for properties according to Swedish rules and regulations.

LEED: International green building certificate for buildings or communities.

Miljöbyggnad: Green building certification developed from Swedish regulations from government and construction practice.

Svanen: Green building certification adopted for a Nordic environment.

Agencies and Organizations

Boverket: The Swedish National Board of Housing Building and Planning.

CBI: Organization for implementing standards on sustainable financial solutions.

EU Taxonomy: Classification system establishing a list of sustainable economic activities.

European Green Deal: Initiative by the European Commission with the aim of making the EU economy sustainable.

ICMA: Organization in the capital markets with the mission to provide well-functional debt security markets internationally.

LMA: Organization aiming to support the development of the loan markets in EMEA.

NACE: Classification system for economic activities.

Paris Agreement: An international treaty on climate change.

TEG: Group founded in 2018 to assist the European Commission in the implementation of financing sustainable growth.

Financial Definitions and Instruments

Delegated Act: Non-legislative act founded by the European Commission to support legislation.

Green Bond: Bond consisting of proceeds to finance sustainable and environmental initiatives.

Traditional bond: Debt instrument where debt holders receive coupon payments from the issuer.

Sustainable finance: The process of taking ESG indicators into consideration when making investment decisions.

Environmental Definitions

CICERO: Provider of second opinions for green bonds.

Energy Performance Certifications: Determines a property’s energy efficiency on a scale of A- G.

EPBD: Legislative instrument by European Commission aiming to promote development within energy performance of buildings.

EU Green Bond Standard: Proposed financing tool ensuring green bonds fulfill environmental objectives according to Europe’s climate goals.

Green Bond Principles: Voluntary process guidelines to increase transparency and integrity in the green bond market.

Renovation Wave: Initiative founded by the European Commission for energy efficiency improvements across the EU.

Sustainability-Linked Bond Principles: A publication by ICMA to offer guidelines regarding reporting, disclosure and features of sustainability-linked bonds.

Sustainability-Linked Loan Principles: A publication by LMA to support socially sustainable and environmentally economic activities and development through sustainability-linked loans.

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List of Figures

Figure 1: Green bond issuance in Sweden, sector distribution (Source: Sveriges Riksbank, 2020). ... 11

Figure 2: Knowledge about the EU Taxonomy - total distribution. ... 21

Figure 3: Most used certification systems according to the respondents. ... 23

Figure 4: Question asked to Swedish respondents. ... 25

Figure 5: Question asked to Baltic respondents. ... 25

Figure 6: Knowledge of the EU Taxonomy - Swedish respondents. ... 28

Figure 7: Knowledge of the EU Taxonomy - Baltic respondents. ... 28

List of Tables

Table 1: Data for the countries Estonia, Latvia, Lithuania, and Sweden. ... 5

Table 2: Distribution of companies. ... 20

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1 Introduction

1.1 Background

The first green bond was issued in 2008 by the World Bank and the Swedish bank SEB (Maltais

& Nykvist, 2020). Since then, the market has grown tremendously from an issuance of 11 billion USD in 2013 to 167 billion USD in 2018 (Maltais & Nykvist, 2020). Despite the worldwide pandemic, 2020 was a record year for green bonds with an issuance of 270 billion USD (CBI, 2021). Hence, the green bond market is still steadily expanding year by year. Up until now, little efforts have been made to harmonize a definition of what constitutes a green bond. As a consequence, risks of greenwashing emerged, where companies could claim to work in a sustainable direction and consequently enjoy a green bond premium, when in reality they were not sustainable. External verification has however protected investors against greenwashing (Bachelet, Becchetti & Manfredonia, 2019). Still, all measures yet taken have been on a voluntary basis, not allowing any harmonization on the subject.

In the European Union, buildings stand for about 40% of the energy consumption and emit 36% of the greenhouse gases, this makes buildings the major energy consuming entity in Europe (European Commission, 2021a). About 75% of the building stock in the EU is currently energy inefficient according to the European Commission (2021a), but still only 1% of the building stock is renovated each year. The call for a transition toward more energy efficient buildings is therefore evident. The European Union has committed to cut greenhouse gas emissions by 55%

until 2030 in its 2030 Climate Target Plan as well as becoming carbon neutral by 2050 (European Commission, n.d.-a). With international agreements such as the Paris Agreement and the United Nations (UN) 2030 Agenda and Sustainable Development Goals to live up to, the EU has to facilitate financial investments in a low-carbon direction. Steps taken by the EU to accommodate this transition include the launch of a European Green Deal, which provides an action plan on how to make the EU economy sustainable (European Commission, n.d.-b).

One major tool for achieving this transition is the EU Taxonomy for Sustainable Activities, henceforth referred to as the EU Taxonomy or the Taxonomy. In its essence, the EU Taxonomy is a system for categorizing sustainable economic activities, thereby providing a common

language for investors to act by (European Commission, 2021b). This means that companies seeking financing from investors who abide by the Taxonomy ultimately have to align with said regulation. For the real estate and construction sectors, the Technical Expert Group (TEG) has acknowledged in the Taxonomy Technical Report from 2019 that market participants who do not align with the EU Taxonomy might face competitive disadvantages and fail to brand their activities and assets as ‘green’ (TEG, 2019). Thus, the EU Taxonomy might benefit market participants actively engaging in a sustainable economic transition.

1.2 Problem Statement and Research Question

This section aims to introduce the problem statement which will lead to the research question, whereafter some of the limitations are discussed. In a response to the December 2020 draft

“Delegated Act of the EU Taxonomy”, the ICMA (2020a) voiced some concerns with the Delegated Act and the EU Taxonomy as a whole. One of these concerns regarded the Technical Screening Criteria (TSC) for real estate and construction activities and more specifically the thresholds for green buildings. In their response, the ICMA mentions that in order for a building constructed before the end of 2020 to be regarded as green under the EU Taxonomy, as it was

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formed at that time, the building must have an Energy Performance Certificate (EPC) of class A or above. The ICMA (2020a) stated that using the EPC class A as a measure is inadequate since it varies across the EU Member Countries. The EPC is built on the Energy Performance in Buildings Directive (EPBD), which in turn is a directive and is thus implemented differently across the Member Countries for example when it comes to methods for calculating energy consumption and enforcement. According to the ICMA, the use of the EPC class A as a

threshold instead of using the best 15% of buildings in a specific market would negatively affect Nordic countries since they are big issuers of green bonds and at the same time they have rigid criteria for their respective EPCs. As a result of that, less than 1% of the building stock would qualify under the EPC class A threshold in those countries. Furthermore, the ICMA (2020a) stated that most of the already established Green Bond Frameworks would not comply with the EPC class A threshold. However, in their updated version of the Delegated Act announced in April 2021, the European Commission decided to also include the top 15% of buildings in terms of energy performance, nationally and regionally (European Commission, 2021c).

To summarize, the concerns voiced by the ICMA and the subsequent modification made by the European Commission bring many questions to light, for example how market participants in different markets respond to the proposed EU regulations. Hence, the research question of this thesis is:

How will the EU Taxonomy impact real estate companies’ sustainable financing in Sweden and the Baltics?

The study is limited to the real estate sector due to the dimensions of the soon to be

implemented EU Taxonomy. The regulation aims to categorize a great number of economic activities and real estate companies are the target group for some of them. The Taxonomy will thus imply changes for these companies and the sector altogether. To further limit the scope of the study, we have chosen to target the Estonian, Latvian, Lithuanian and Swedish markets to compare similarities and differences regarding the perspectives on sustainable finance in relation to the EU Taxonomy. The rationale for targeting named countries is because they are

geographically close and members of the European Union. Moreover, many financial

institutions, for example banks, are active on all those markets. There are also differences in the range of green or sustainable financing across the markets, for example the prerequisites of issuing green bonds or using green loans.

By stating the research question as ‘sustainable financing’, the thesis targets green bonds as the primary scope of research for the Swedish market. For the Baltic markets however, the term primarily encompasses other sources of financing than green bond financing, such as green loans. The reason behind this is that no green bonds with the use of proceeds aimed exclusively for real estate projects have been emitted as of today. Thus, the thesis differentiates between the countries and the conditions on their financial markets. Nonetheless, the EU Taxonomy will be adopted by all member countries and the thesis illustrates how the sector, in different markets, works with implementing sustainability in terms of financing in accordance with the EU Taxonomy.

The EU Taxonomy is still in the process of being implemented and is not yet finalized, which might mean that some of the perspectives presented in this thesis could have changed at the time of publishing. Nevertheless, implementing a new regulation such as the EU Taxonomy is an ongoing process, and the aim is thus to capture the dynamic aspects of the implementation.

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1.3 Purpose

The main purpose of this thesis is to investigate and clarify what the effects of the EU

Taxonomy could be for real estate companies working with sustainable financing in Sweden and in the Baltics. To achieve this, a literature study was conducted to lay a theoretical foundation to understand the meaning and impact of the EU Taxonomy and its connections to sustainable finance. Together with the empirical evidence consisting of interviews, the theoretical foundation is used to answer the research question and fulfill the main purpose of the thesis.

The expectation is that the study will contribute with insights for real estate companies in Sweden and the Baltics and the consequences for their ongoing work with sustainable financing.

Further, the ambition is for the results and findings of this thesis to be applicable for real estate companies aiming to sustainably finance their portfolios and operations, as well as financial intermediaries, such as banks, striving to understand how the EU Taxonomy will affect parts of the financial markets. Another expectation is for the study to contribute to an exchange of knowledge between the countries and thereby increase cross-border transparency for market participants.

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2 Theory

2.1 Literature Review

A literature review was conducted in order to set the foundation of this thesis. Academic texts from the field of sustainable finance in the real estate sector were reviewed, as well as prior research into sustainable real estate from different countries. Moreover, existing research on the EU Taxonomy was examined.

Previous research into the sustainable real estate markets of Sweden and Latvia has found that buildings in Sweden have developed in a sustainable direction, whereas their Latvian

counterparts are lagging behind (Mishra & Kauškale, 2017). However, the authors of the

research also note that Latvia is taking steps to increase sustainability in their buildings. Mishra &

Kauškale (2017) also argue that the countries are at different stages of development.

Moreover, green building certification systems are an important factor in evaluating real estate in terms of sustainability. Research has found the BREEAM certification system to be the strongest in terms of coverage, although no certification system analyzed in the paper could cover all sustainability aspects (Doan et al., 2017). The authors further discuss that the LEED and

BREEAM certifications are the most commonly used and widespread ones (Doan et al., 2017, p.

257). Further research into the field of sustainable real estate includes a review of the policy framework in the European Union (Strauss, 2018), which identifies that financing building renovations is difficult.

According to Liu, Liu & Zhang (2019), real estate companies that issue debt have higher asset quality than those who issue equity. They also found that if asset quality were not observed easily, then the choice of financing depends on the general conditions of the real estate market.

The study however focuses on real estate investment trusts. Other studies in the field of real estate investments include research by Groh & Lieser (2014), who have researched the determinants of international commercial real estate investment. They found factors such as economic growth, urbanization and demographics to attract investments in real estate. On the other hand, factors that reduce real estate investments are legal frameworks that lack

transparency, administrative burdens, and instabilities on a socio-cultural and political level (Groh & Liesner, 2014).

Literature related to sustainable finance and investing was also examined. Schoenmaker &

Schramade (2019) describe sustainable development as current and future generations having their needed resources without stressing planet Earth. They argue that finance could play an important role to allocate funding to sustainable economic activities and thereby facilitate a low- carbon transition and a shift towards a circular economy. Sustainable finance is thus the

intersection between finance and ESG issues. Schoenmaker & Schramade (2019) further states that investors, by their influence through finance, can drive companies towards sustainable economic activities. They also argue that sustainable finance has developed towards creating long-term value, which is a shift from short-term profits. Finally, the authors explain that a recent development in the field of sustainable finance is the move from risk to opportunity.

Moreover, research about the market for sustainable financing and investments has found that European investors are more demanding regarding green investing than American investors (Deschryver & de Mariz, 2020). According to the Bloomberg Barclays MSCI Green Bond Index, 21% of the green bond market was in alignment with the criteria of the EU Taxonomy, as it was

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formed in 2019 (MSCI, 2019). The same index suggests that 5% of the bonds related to real estate were aligned with the EU Taxonomy requirements. Since the referenced report was issued, the EU Taxonomy has been updated, meaning that either more or less bonds could be aligned with the EU Taxonomy as of today.

Previous studies into the EU Taxonomy have investigated how the EU Taxonomy would affect sustainable funds in Sweden, a country which already has established systems of classifying sustainable investments (Ingre & Passburg, 2020). The research found that the funds’ investment strategies were expected to align with the Taxonomy. Further research into the EU Taxonomy has studied its link to green bonds and stated that the Taxonomy has the potential to globalize the green bond market (Deschryver & de Mariz, 2020).

Although there evidently has been research referring to sustainability in the real estate and finance sectors as well as the EU Taxonomy, no research appears to combine these topics into a cross-border analysis like we are doing in this thesis. The research gap this thesis fills is therefore big.

2.2 Country Overview

Since the scope of this thesis targets four countries of different sizes, this section aims to provide basic insights into each country, displayed in Table 1 to allow for comparisons.

Table 1: Data for the countries Estonia, Latvia, Lithuania, and Sweden.

As can be seen, the Doing Business and Sustainable Competitiveness rankings are shown in the table. Doing Business is a publication from the World Bank Group that measures regulations that affect business activities and presents quantitative indicators for them (Doing Business, 2020a). The ranking provides data from 190 economies and covers the process from opening a

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business, getting a location, getting access to finance, dealing with everyday operations, to operating in a fair business environment (Doing Business, 2020b). The scale of the ranking is 1- 190. The other ranking shown, called the Global Sustainable Competitiveness Index, is a measurement of natural capital, social capital, government efficiency, resource efficiency and intellectual capital with data from the World Bank, the IMF and the UN (SolAbility, 2020). The ranking is 1-180 and scores are 1-100. Although no indicator shown in Table 1 should be regarded as the truth, they provide information about the current position of the countries.

2.3 EU Taxonomy

2.3.1 Introduction to the EU Taxonomy

The EU Taxonomy is a classification system under implementation, aiming to categorize sustainable economic activities. The purpose of the EU Taxonomy is to offer guidelines to countries within the EU to classify their economic activities as sustainable or not sustainable.

The EU Taxonomy aims to give security to investors, companies and policymakers by offering performance thresholds on how to classify economic activities as sustainable (European Commission, 2021b).

The following sections provide basic information about the EU Taxonomy. The information is gathered from the reports “Taxonomy: Final report of the Technical Expert Group on

Sustainable Finance” published in March 2020, and the “Taxonomy Technical Report” published in June 2019, both by the TEG. Information about the delegated act stems from publications by the European Commission. The Taxonomy will be fully implemented by 2023 (TEG, 2020b) and thus some information might be subject to change.

As to who is set to use the EU Taxonomy, the Taxonomy regulation proposes three mandatory users of the Taxonomy: The EU and its Member States when legislating on topics related to environmentally sustainable financial products; financial market participants who are labeling their financial products or investments as environmentally sustainable; companies who are subject to the Non-Financial Reporting Directive (EUR-Lex, 2020). The Taxonomy may be used by other market participants too, for example when using the proposed EU Green Bond

Standard (TEG, 2019).

The EU Taxonomy has been developed around six Environmental Objectives (European Commission, 2021b):

1. Climate change mitigation 2. Climate change adaptation

3. Sustainable use and protection of water and marine resources 4. The transition to a circular economy

5. Pollution prevention and control

6. The protection and restoration of biodiversity and ecosystems

To be considered an environmentally sustainable economic activity under the EU Taxonomy, the activity must substantially contribute to one or more of the six Environmental Objectives; do no significant harm (DNSH) to any other Environmental Objective; comply with minimum safeguards, which are a set of international principles (TEG, 2020b). Moreover, the economic activity must meet the technical screening criteria (TSC), which is a list of eligible activities and published through delegated acts. The activities are based on the NACE system, which

categorizes economic activities in the EU.

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In April 2021, the first delegated act was published by the European Commission, containing TSC related to the first two Environmental Objectives; climate change mitigation and climate change adaptation (European Commission, 2021b). Another delegated act covering the other Environmental Objectives will be published in 2022. The remainder of this section will provide a brief review of parts from the first delegated act related to the real estate sector.

2.3.2 The EU Taxonomy in the Real Estate Sector

The technical screening criteria published in the first delegated act of the EU Taxonomy lists seven Construction and Real Estate Activities. The activities are (European Commission, 2021d):

1. Construction of new buildings 2. Renovation of existing buildings

3. Installation, maintenance and repair of energy efficiency equipment

4. Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings)

5. Installation, maintenance and repair of instruments and devices for measuring, regulation and controlling energy performance of buildings

6. Installation, maintenance and repair of renewable energy technologies 7. Acquisition and ownership of buildings

This section will provide further information from parts of the three categories most relevant for this thesis, which are the construction of new buildings, renovation of existing buildings and acquisition and ownership of buildings. For the construction of new buildings to be eligible under the EU Taxonomy, the energy performance of the building has to be at least 10% lower than the national near zero-energy building thresholds, which should be disclosed through an Energy Performance Certificate (European Commission, 2021d). For renovations of existing buildings, the primary energy demand has to be reduced by at least 30%. For the acquisition and ownership of buildings, the Taxonomy prescribes that buildings built before the end of 2020 must have an Energy Performance Certificate of class A or have an energy performance in the top 15% of the national or regional building stock (European Commission, 2021d).

Regarding the substantial contribution to the Environmental Objective climate change adaptation, the EU Taxonomy considers and encourages climate risk and vulnerability assessments and projections for the lifespan of the economic activity, based on market best practice (European Commission, 2021e). To be eligible, the building must not conflict with the DNSH criteria set out, which for example includes the extraction, storage, transportation of manufacturing of fossil fuels.

This section has reviewed the key aspects of the EU Taxonomy and described its delegated act for the real estate sector. Since the EU Taxonomy is an extensive tool, it is not possible to cover all its parts in this thesis, but instead the aim has been to describe the foundation of the

components relevant to understand the premises of this thesis.

2.4 The EPBD Directive

The idea of energy efficiency in buildings began with the introduction of the EU energy policy agenda in the 1970s. Since then, issues related to climate change, such as global warming, have increased the need for a solution limiting the contribution of CO2 emissions from buildings (Economidou et al., 2020). The introduction of the Energy Performance of Buildings Directive (EPBD) taking place in 2002 was the first legal act towards energy efficiency in buildings. The

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European Commission updated the EPBD in 2009 to strengthen the old regulations as well as adding new dimensions to the EPBD. The major change in 2009 consisted of a rule ensuring that member states adapted to the same minimum energy performance (Economidou et al., 2020).

The member countries in the EU have implemented the EPBD and therefore the directive of energy efficiency in their buildings. Nordic countries prove to have similar procedures in construction and building traditions and climate prerequisites. Studies state that Nordic countries, through the implementation of the EPBD, have various definitions of “energy performance in buildings” and different methods regarding calculation and measurement of energy efficiency (Allard, Olofsson & Hassan, 2013). These differences are also evident across several of the other EU Member States. Gonzalez-Caceres, Lassen & Nielsen (2020) state that the EPBD has a flexible formulation and thus large differences in labelling systems, calculation methods and climatic zoning can be observed among Member States. The authors illustrate differences between energy performance indicators between Latvia and Sweden. The indicator scale of Latvia ranges from A to F and considers final and primary energy consumptions and CO2 emissions, while the Swedish equivalent ranges from A to G and accounts primary energy consumptions and compares all buildings with the classification of C (Gonzalez-Caceres, Lassen

& Nielsen, 2020). The authors state that the implementation of the EPBD differs between countries, in terms of procedures, methodologies and national structures.

The authorities responsible for implementing the EPBD vary between countries. Boverket (The Swedish National Board of Housing Building and Planning) has the main responsibility for the implementation of the EPBD in Sweden together with the Ministry of Environment and the Ministry of Enterprise. Further, Boverket has control over the regulations for Swedish buildings (EPBD-CA, 2010). In the Baltic countries there are different authorities responsible for the implementation of the EPBD. In Latvia it is the Ministry of Economics (EPBD-CA, 2015), in Lithuania it is the Ministry of Energy and the Ministry of Economics jointly (EPBD-CA, 2016a) and in Estonia it is the Ministry of Economic Affairs and Communications (EPBD-CA, 2016b).

The EPBD directive was introduced in 2002 and has been updated during 2010 and 2018 since then. There is an EPBD regulation for energy certificates and also one for energy management.

Boverket is responsible for the regulations for energy management in BBR and the regulations in BED about energy declarations (Boverket, 2018).

In 2020, the European Commission announced its strategy to advance energy efficiency improvements across the Union, called the Renovation Wave. The strategy includes an action plan with acts on regulation, financing and enabling measures and the aim is to at least double energy efficiency improvements by 2030 (European Commission, 2021f). To fulfill the target, the EPBD directive is currently in the process of being revised.

2.5 Green Loans

Green loans are loan instruments where the proceeds aim to finance or refinance eligible environmentally sustainable economic activities (LMA, 2018). In the same way as with green bonds, there have been Green Loan Principles introduced by the Loan Market Association (LMA) in 2018. The four components of the Green Loan Principles are (1) Use of Proceeds, (2) Process for Project Evaluation and Selection, (3) Management of Proceeds, (4) Reporting (LMA, 2018).

Green loans have also become visible among financial institutions, for instance banks. Since 2017 the bank Swedbank has established criteria, such as a framework, for green financing.

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Swedbank’s Green Bond Impact Report is presenting both present and predicted future volumes of green financing. Between 2018-2020 their green assets increased from 10 319 million SEK to 18 344 million SEK. As of 2020, the total volume of green assets for Swedbank was 18 344 million SEK which amounted to 75% share of green properties. The assets contributed to an equivalence reduction of 589 547 tonnes of CO2 emission during 2020 (Swedbank, 2021).

As for 2020, Swedbank’s volume of green loans in Sweden were 2 098 million SEK of which 1 822 million SEK were lent to green properties (defined as energy efficient and green building certified properties). Swedbank’s Swedish market total volume of green loans increased from 654 to 2 098 million SEK between 2018-2020. The share of green properties went from 150 million SEK in 2018 to 1 822 million SEK in 2020. For the Baltic market, Swedbank (2021) had a total volume of 3 022 million SEK for green loans of which 165 million SEK were lent to green properties. The Baltic markets were introduced to green loans in 2019 and lending to green properties were introduced in 2020, therefore there are no available statistics further back (Swedbank, 2021).

2.6 Sustainability-linked Loans and Bonds

Unlike financial products such as green bonds or loans, sustainability-linked bonds and loans are tied to predefined sustainability or ESG objectives, such as key performance indicators, aiming to boost the overall sustainability performance of the issuer or borrower (ICMA, 2020b). Instead of using the proceeds for a specific project, sustainability-linked bonds and loans can be used for broad corporate purposes (LMA, 2019). For sustainability-linked bonds, the ICMA published Sustainability-Linked Bond Principles in 2020. Sustainability-Linked Loan Principles were published by the LMA in 2019.

Moody’s (2021) consider sustainability-linked loans and bonds to be of growing importance for debt issuers. In the first quarter of 2021, global sustainability-linked bond issuance rose by 57%

from the previous quarter, to a volume of 8.6 billion USD. For sustainability-linked loans during the same time-period, issuance increased by 29% to 97 billion USD (Moody’s, 2021).

Sustainability linked loans are increasing in importance for banks such as Swedbank too, and as for the Baltic market new sustainable products and services have been introduced recently (Swedbank, 2021). For Swedbank, the total volume of sustainability-linked loans went from 1 708 million SEK in 2019 to 4 481 million SEK in 2020 (Swedbank, 2021).

2.7 Bonds

A traditional bond is defined as a financial instrument used for investments where the obtained capital can be used freely (Regeringen, 2017 p. 105). The capital from the traditional bond is therefore used by the issuer to finance its business without any direct transparency for the investor as to what the capital exactly has been invested in. For sustainable investors the investment in a traditional bond implies analytical work over the company's activities to be able to identify sustainable investment alternatives. Alternatively, an external company could be hired for conducting analytical work. This therefore leads to higher transaction costs. When investing in a traditional bond for sustainable purposes, the investor is usually limited to distinct

sustainable companies since the proceeds from the traditional bond are not traceable, unlike proceeds from a green bond (Regeringen, 2017 p. 109).

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2.8 Green Bonds

2.8.1 What is a Green Bond?

A green bond is defined as a “financial instrument linked to investments whose purpose is to lower the climate- and environmental impact and contribute to a sustainable development”

(Sveriges Riksbank, 2020). The issuer of the green bond thereafter uses the given capital to finance an asset or project connected to sustainability within a green framework (Sveriges Riksbank, 2020). A green bond differs from a traditional bond since the capital is excluded to sustainable projects, companies and assets (Regeringen, 2017). The issuer gradually accounts for what the capital has contributed to regarding the climate and environmental impact (Sveriges Riksbank, 2020). Green bonds are usually following established principles such as the Green Bond Principles (GBP) which prescribes the financial instrument to be reviewed and classified according to an independent third party to ensure that they are in a transparent way that can account for how they have been defined, supervised and reported (Regeringen, 2020).

The Intergovernmental Panel for Climate Change, founded by the UN, published a report revealing that climate change was linked to human action in 2007. This inspired a Swedish Pension Fund to go to their bank SEB in order to find a way to invest their capital in a possible solution to the global warming problem. Together with the World Bank, SEB issued a bond dedicated to a project with a climate focus, which at the time had never been done before.

To assure the investors that the invested capital was used only for climate focused projects, SEB and the World Bank contacted the Centre for International Climate and Environmental Research (CICERO) which is a research center with knowledge about climate. CICERO could further assist in providing a detached view when deciding whether a project had a positive climate change. The collaboration included fields such as finance, science and development which committed to finding a solution to the problem. Thus, in 2008 the first green bond was issued in Sweden by SEB and the World Bank with the aim to increase awareness of climate change when investing in projects (World Bank, 2019b). CICERO has since become a frequent provider of second opinions on green bonds and other sustainable financial products.

2.8.2 Geographic Distribution

The issuance of green bonds as a source for sustainable financing varies between countries. In the Nordic and Baltic regions, Sweden dominated the green bond market in 2018 with a market share of 52%, while the Baltic region answered for 2.4% of the green bonds issued in the

regions. Out of these 2.4%, Lithuania stood for 1.5%; Latvia stood for 0.6%; Estonia comprised 0.3%, according to a report by the Climate Bonds Initiative (CBI, 2018). The same report further notices that the Baltic countries have the benefit of having the Euro as currency, which is

positive for international investors. To illustrate the growth of green bond issuance in Sweden, Figure 1 shows a sector distribution of green bonds in Sweden (Sveriges Riksbank, 2020).

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Figure 1: Green bond issuance in Sweden, sector distribution (Source: Sveriges Riksbank, 2020).

2.8.3 Green Bonds in the Real Estate Sector

The climate aspect has had an impact in the world as well as for the real estate sector. More specifically, green bonds have become a well-known topic in the real estate sector according to Humlegården (2018). Humlegården claims that the environmental aspect increases by investing in green bonds and the green bonds also lower the cost of lending money because of the higher demand than supply of sustainable investments (Humlegården, 2018). Further, the financial market has a big impact on climate change and therefore it is essential to change the direction of the capital to initiatives supporting sustainable investments, such as investing in green bonds.

Aiming to be compliant with the Paris Agreement, there will be a need for the financial system to channel a high amount of capital and new financial instruments into a sustainable transition (Sveriges Riksbank, 2020).

Further, green bonds can be related to a specific property which then would be called a “green property”. Lately it has become a requirement for some tenants to live in a “green property”. For investors the requirement could lead to a possibility of a lower required rate of return which lowers the cost of property for the property owner. This increases the interest of producing

“green properties” when building new properties by the property owner, since it has a higher chance of a profitable investment cost (Regeringen, 2017).

2.9 The Green Bond Principles

As of today, there is no single definition of what constitutes a green bond. This has led to uncertainties for investors and increased the probability of green-washing on the bond market (BIS, 2017). Some market participants have implemented their own standards, wanting to increase the transparency on the green bond market. The introduction of the Green Bond Principles (GBP) by the International Capital Market Association (ICMA) functioned as an initial step toward a standardization of how green bonds should be labeled and reported, leading many

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market participants to develop their own Green Bond Frameworks (GBF) in alignment with the Green Bond Principles (BIS, 2017). The first version of the Green Bond Principles was

introduced in 2014 and has been updated continuously, most recently in June 2018. The Green Bond Principles are based on the following four premises (ICMA, 2018):

● Use of Proceeds, which implies that the proceeds received from the bond are used to finance green projects and should be specified in the legal documentation of the bond.

● Process for Project Evaluation and Selection, meaning that the issuer is encouraged to inform the investors of the environmental objectives; how the issuer has ensured that the green project is compliant with the Use of Proceeds; the process of identifying and managing the project’s environmental and social risks.

● Management of Proceeds, which prescribes that eventual net proceeds of the green bond should be appropriately tracked and communicated to the investors.

● Reporting, meaning that issuers should continuously provide current information to investors over the term of the bond. Emphasis is put on transparency in communicating the use and impact of the proceeds.

Moreover, the Green Bond Principles recommend that the green bond should be externally reviewed in order to verify that the bond is aligned with the principles (ICMA, 2018). While being the most accepted guideline of disclosing a green bond, the Green Bond Principles are voluntary guidelines and thus issuers have no obligation to obey them. They have however facilitated both issuers and investors in increasing transparency and thereby the market for green bonds.

2.10 EU Green Bond Standard

As a part of the European Green Deal, the EU has announced that they will be introducing an EU Green Bond Standard (GBS) in order to harmonize green bond financing and investments across the union. The EU GBS is largely based on market best-practice, such as the GBP. A bond issued in accordance with the EU GBS will therefore automatically be aligned with the requirements of the GBP. The Technical Expert Group on Sustainable Finance (TEG) has proposed a Usability Guide on the EU GBS, which has not yet been legislated by the European Commission (TEG, 2020a).

The proposed EU Green Bond Standard includes these four central aspects for a bond to be considered an EU Green Bond:

● The use of proceeds should be aligned with the EU Taxonomy, meaning that the

proceeds shall be used to substantially contribute to at least one of the six Environmental Objectives of the Taxonomy, while not harming any other objective. At the same time, the project has to comply with minimum safeguards (such as national or international law) (TEG, 2020a p. 35).

● The issuer must produce a Green Bond Framework which includes (1) the issuer’s strategy in alignment with the Environmental Objectives. The issuer should also disclose (2) how the proposed projects align with the EU Taxonomy and, if possible, include technical screening criteria and approvals from a recognized Verifier. In the framework, issuers shall also include (3) a description of the green project that the EU Green Bond will finance or refinance. Furthermore, the (4) process for linking the EU Green Bond to the project to be financed should be included, implying that proceeds and net proceeds should be managed and documented appropriately. Lastly, the (5) Reporting shall be described, as well as the methodology and assumptions made for key metrics, if used (TEG, 2020a p. 36).

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● Mandatory Allocation Reporting and Impact Reporting to be communicated by the issuer. The Allocation Report has to be conducted at least annually until full allocation of the proceeds and thereafter if the allocation changes. The Impact Report discloses the impact of the projects and has to be done at least once during the bond's lifetime after the proceeds are fully allocated (TEG, 2020a p. 37).

● Verification is a key requirement of the EU Green Bond Standard and means that issuers have to appoint external verifiers who have to affirm the alignment of the GBF with the EU Green Bond Standard before the issuance and once again when the proceeds are fully allocated (TEG, 2020a p. 38).

Though only voluntary at first, the EU Green Bond Standard will serve as a tool to define whether a bond should be regarded as green or not because of its connection to the EU Taxonomy. The Taxonomy provides classifications and metrics, and the EU Green Bond Standard provides a framework for issuers and investors to act by (Nordea, 2020).

2.11 Green Building Certification Systems

2.11.1 BREEAM

Building Research Establishment Environmental Assessment Method (BREEAM) is an energy classification system from the United Kingdom and is considered to be one of the most

established systems in Europe (SGBC, 2018a). The system is developed by the Building Research Establishment (BRE) and is used to classify buildings according to environmental standards and the property’s environmental performance. The points added from the property’s environmental performance are thereafter added up to a sum and graded according to Pass, Good, Very Good, Excellent or Outstanding. The purpose of BREEAM is to offer a credible eco-labeling and excite the demand of sustainable buildings by the assessment of a property’s environmental advantages (SGBC, 2018b).

2.11.2 BREEAM-SE

Sweden Green Council has since 2013 been responsible for the Swedish version of the

BREEAM energy classification system named “BREEAM-SE” (SGBC, 2018a). BREEAM-SE is an energy classification for properties according to Swedish rules and regulations. The energy certificate is therefore eligible for comparison on an international level. A property with the named certification is implying that it has a high standard and is contributing to a better

environment as well as a better investment. This gives a higher value on the market for investors.

The given points for the property are categorized into grade levels:

Outstanding ≥ 85%

Excellent ≥ 70%

Very good ≥ 55%

Good ≥ 45 % Pass ≥ 30%

Unclassified < 30%

The properties’ obtained grades may be comparable to other similar properties and the sustainability for a number of properties (SGBC, 2018a).

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2.11.3 LEED

Leadership in Energy and Environmental Design (LEED) is an energy classification system developed by the U.S. Green Building Council. The purpose of the system is to map

construction, design, operation and maintenance in the category “environmentally friendly”.

There are four levels of the certification: Certified, Silver, Gold and Platinum (SGBC, n.d.). The purpose of LEED is to reach seven prioritized goals:

● To lower the global climate changes

● To enhance the individual health and well-being

● To protect and restore water resources

● To protect, enhance and restore biodiversity and ecosystem services

● To promote regenerative material resources

● To establish a sustainable economy

● To increase common quality of life

Further, the LEED energy classification is global and therefore possible to compare the environmental performance across nations. It is also considered to be one of the most well- known and used energy classification systems internationally. The system classifies a property’s energy performance based on 6 areas (PEAB, n.d.):

● Location and transport

● Sustainable sites

● Water Efficiency

● Energy and Atmosphere

● Materials and resources

● Indoor Environmental Quality

Based on a property’s performance it may be classified as either Certified, Silver, Gold or

Platinum. The classification system is applicable for new buildings and existing buildings (PEAB, n.d.).

2.11.4 Miljöbyggnad

ByggaBoDialogen developed the certification Miljöbyggnad in order to reach the Swedish environmental quality requirements. The certification was released in 2009 and Swedish Green Building Council (SGBC) took over the responsibility from 2011 and further. The certification is developed from the Swedish regulations from government and construction practice. Both existing and new buildings, part of buildings and rebuilds may be certified according to Miljöbyggnad. As per Miljöbyggnad a building is defined as “existing” when it has been in use for more than two years. Further a certification is valid for a maximum of ten years or when the building has changed in a way that lowers the certification result (Bengt Dahlgren, 2016).

The certification has four levels: Classified, Bronze, Silver and Gold, where Gold indicates the highest score in sustainability. To be classified as Gold, the building is not allowed to have any indicator of Bronze in the building’s certificate. Bronze can be translated into approved by government regulations such as Socialstyrelsen, Arbetsmiljöverket and Boverket. Later on, it is also possible to increase the grade by sending in completing documents approving of higher grades (Bengt Dahlgren, 2016).

For a certificate to be issued, the following 14 indicates has to be included in the assessment of the building (Bengt Dahlgren, 2016):

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● Energy consumption

● Heat output requirements

● Solar heat load

● Energy type Indoor environment

● Sound environment

● Radon

● Ventilation standard

● Nitrogen dioxide

● Moisture safety

● Thermal climate winter

● Thermal climate summer

● Daylight

● Legionella Material

● The remediation of dangerous substances

2.11.5 Svanen

Svanen is an environmental certification with high standards of material used to build the

property itself which increases the living environment. A property with the Svanen certificate has low energy use and low environmental impact. The certificate guarantees low energy use, high environment and health requirements.

The properties built with the Svanen certificate guarantee (Svanen, n.d.):

● Low energy use

● Fulfill high environmental- and health requirements on building products, material and chemical products

● Good indoor environment and low emissions

● Quality assured building process

2.12 Overconfidence Effect

There are numerous established cognitive biases that affect the rationality of judgements, one of which is the overconfidence bias. According to Moore & Healy (2008), literature has described overconfidence either as (1) overestimation of one’s own performance, or (2) the belief that one is better than others, or (3) exaggerating the certainty of one’s beliefs. A well-known example of the second phenomenon is the research where 69% of Swedish drivers and 93% of American drivers believed that they were better drivers than the median driver (Svenson, 1981). Svenson (1981) further argues that the phenomenon may be a result of lack of information about the other participants in the group.

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3 Methodology

3.1 Research Methods

Research methods are commonly divided between qualitative methods and quantitative methods, or a mix of both methods. Quantitative research puts emphasis on deduction, objectivity and generality; whereas qualitative research emphasizes induction, subjectivity and contextualizing (Morgan, 2014). Given the nature of the research question and the purpose of this thesis, the authors believe a qualitative method provides the best conditions in order to answer them in a satisfactory manner. Further, the qualitative research method allows for techniques, such as qualitative interviewing, which we believe are good approaches in order to capture the targeted market participants’ response to the EU Taxonomy and sustainable finance.

3.2 Data Collection

The data for this thesis was collected by first conducting a literature study to discover about the EU Taxonomy, sustainable real estate and sustainable finance, which served as a foundation for defining the proper methodology. Thereafter, the literature study was extended to cover relevant theoretical frameworks with the purpose of serving as a foundation for understanding the empirical evidence, which was collected through interviews. The following sections provide in- depth information of the process and rationale for collecting data.

The literature for the literature study was found using the search engines KTHB Primo, Google Scholar, and ScienceDirect. Named search engines were found to be reliable since they provide objective and scientific publications. Both Swedish and English literature were used in the research, and search words in both languages were used. Recurrent keywords in searches were for example “EU Taxonomy”, “real estate”, “green bonds”, “green buildings” and “sustainable finance”. More specific searches, for instance: “EU Taxonomy real estate” and “green bond buildings”, were also made. Furthermore, theories and publications from organizations such as the EU, LMA and ICMA were used, since they are the official sources on topics such as the EU Taxonomy, the EU Green Bond Standard, the Green Loan Principles and the Green Bond Principles.

One source for collecting data for this thesis is through interviews. Interviews are one of the most common approaches for qualitative data collection, since they provide information about how certain individuals respond to a given problem statement (Blomkvist, Hallin & Lindell, 2018). Interviews are adequate when a deeper and diverse understanding of a phenomenon is of interest (Blomkvist, Hallin & Lindell, 2018). Regarding whom to interview, methodological theory presents different suggestions. One of them is to conduct expert interviews. Experts are regarded as people holding practical insider knowledge within a field that could otherwise be obtained through interviewing a bigger selection of participants (Flick, 2018). Since the purpose of our study is to get a comprehensive understanding of a specific phenomenon - the EU Taxonomy and its impact on sustainable financing - with empirical evidence directly from

prominent market participants, we believe that interviewing experts gives us the best information in an efficient manner. However, to reflect the diversity of the markets, not all respondents should be regarded as experts on the EU Taxonomy, but rather on the topic of real estate financing.

In general, there are two ways of conducting a qualitative interview: either unstructured or semi- structured. An unstructured interview has no specified questions; it is rather a casual

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conversation about a topic or a question (Blomkvist, Hallin & Lindell, 2018). A semi-structured interview is usually constructed around general topics that are noted in advance in an interview guide (Blomkvist, Hallin & Lindell, 2018). While both methods focus on initiating a conversation about a topic, the semi-structured interview follows a general structure that allows for further specification as the interview progresses. For that reason, we have opted for conducting semi- structured interviews since they also favor nuanced responses to the topics we have listed in the interview guide (see Appendix), which we believe in turn enabled us to analyze the data properly.

To fulfill the purpose of the thesis and collect valuable information, the authors held continuous meetings with Swedbank, contacted real estate companies in Sweden and in the Baltics through mail and telephone and researched databases such as Thomson Reuters Eikon. The width of the contact channels has provided different materials to analyze and proceed with the processing of the thesis. The many meetings with Swedbank have contributed with information, inspiration and guidance for the collection of data and also some relevant companies to contact in Sweden and in the Baltics. This has undoubtedly made the steps towards a complete thesis fewer and also increased the strength of the results.

In total, 20 real estate companies and four government agencies were contacted regarding possible interviews for this thesis. The proposed respondents were primarily contacted by email, and secondarily by telephone. Before deciding to take part in an interview, the possible

respondents were given a short introduction to the EU Taxonomy and the scope of research, as well as the possibility to read in on the questions beforehand. The purpose of handing out the questions beforehand has been to give the respondents the content and extent of the interview and the possibility to forward the interview if they find that another role at the company is a better fit for the job. This has given us a wide range of respondents to the interviews which contributed to a broad perspective of the topic.

The most difficult part in the interview process would be to get in touch with the right people at relevant companies. This turned out to be more difficult than we thought beforehand since many companies had a tight schedule and some considered to not have enough knowledge to

participate in the interviews when receiving the questions. To manage the situation, we decided to email as a first attempt of contact and as a second attempt we would call the given company and most of the times the calls lead to a successful booking of an interview. In other cases, it led to a simple “no” which both saved time and gave the opportunity to look further on for more relevant companies.

To further broaden the perspectives and responses to our topics, we decided to also include government agencies from Estonia, Latvia, Lithuania and Sweden. The rationale behind this was to receive opinions from government authorities regarding the Taxonomy. We believe

authorities provide a general view of the topic since they’re not personally affected by the

financial aspects related to the EU Taxonomy which is something that possibly could affect both perspective and opinion of the topic. Also, the authorities could provide opinions on the EPBD, which the Taxonomy in its current form puts emphasis on, rather than specific green building certifications which may often be used by real estate companies.

3.3 Data Selection

The following sections cover how data was selected for this bachelor thesis. Given the research question, the main target group for the empirical study is real estate companies that either (1) have issued green bonds in the past, or (2) are looking to integrate sustainability when financing in the future, or (3) are working to integrate sustainability in their business. These criteria were

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selected since they would cover companies who had taken the EU Taxonomy into account which would thus also align with the thesis’s purpose, but also include companies who were not as knowledgeable to the regulation but still interested to express their opinions. Moreover, the interview respondents consist of representatives from large and medium-sized companies in the respective domestic market. This is in order to capture the diversity of the real estate market, where companies differ in their size and property portfolio.

Due to the authors’ lack of prior knowledge of the Estonian, Latvian and Lithuanian markets, Swedbank has assisted the selection of some companies to interview in those markets. This may lead to a selection bias, which is when participants in a study are not selected on a random level, which may lead to biased results (Frey, 2018). However, since the purpose of the study is to investigate and clarify the impact of the EU Taxonomy, this potential selection bias is believed to be small and is not likely to affect the findings of this study. We also conducted thorough

research into the foreign markets and companies active there. As aforementioned, in order to further broaden the empirical study and to involve another perspective on the impact of the EU Taxonomy, representatives from the government bodies responsible for implementing laws on energy classifications of buildings such as the EPBD were interviewed.

3.4 Data Analysis

One approach for analyzing qualitative data is through thematic analysis. Thematic analysis implies that themes or patterns are identified in the data, which is then coded and categorized into themes. Coding is a central aspect of thematic analysis. It is the process of examining data to discover frequent themes or patterns (Mills, Durepos & Wiebe, 2010). From those common themes discovered, interpretations can be made. Thematic analysis is applied on many different data sources, one of them being interviews (Mills, Durepos & Wiebe, 2010). Since we are conducting interviews to gather empirical evidence, we suggest that this data is best analyzed using thematic analysis. Moreover, our interviewees will be of different nationalities and are thus operating in different market conditions, and the portfolios of their real estate holdings differ.

However, we believe that by using thematic analysis, we will be able to identify both similarities and differences more efficiently than if we were to use another approach for analyzing the data.

Moreover, as part of analyzing the data, we chose to transcribe each interview in order to easily highlight common themes before structuring the empirical evidence and analysis as presented in the following chapters.

3.5 Reliability of the Study

Since the primary source of empirical data collection for this thesis has been semi-structured interviews, the authors have put in a lot of effort in analyzing and interpreting the results given.

With this said, there might be potential biases in the interpretation as well as in the results which could possibly lead to inaccurate conclusions as a result of misunderstandings, language barriers and loss of information during the transcription of the interviews (Marshall, 1996). However, the interviews have been recorded and thereafter transcribed to avoid any mistakes regarding the gained information. The credibility of the study may be affected by possibly inaccurate conclusions which therefore could affect the given result.

Regarding the reliability of the findings in this study, as stated before, the scope of this thesis is the EU Taxonomy which is currently being implemented and by using interviews as the main source of empirical research, our responses are prone to be affected by personal opinions of the interviewees that may be unique for the time being and could therefore differ if the interviews

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were to be reproduced at a later time. This is a phenomenon known as time inconsistency and means that a person can have different preferences at different points in time (Genevieve, 2018).

To mitigate this risk and increase the overall reliability of our findings, we have analyzed the empirical evidence and put them into relation with previous studies and the legislative framework presented in previous chapters.