Question after question: In the fourth edition of “LIST auf den Punkt,” we took a close look at circularity in our industry and wanted to know: Who can do it? What are the benefits? But our moderator Jürgen Utz’s note card was even more packed. The panel discussion revolved around a third question: How will it all come together?
Question after question: In the fourth edition of “LIST auf den Punkt,” we took a close look at circularity in our industry and wanted to know: Who can do it? What are the benefits? But our moderator Jürgen Utz’s note sheet was even more packed. The panel discussion revolved around a third question: How will it all come together?
Wood as a building material, brief forays into biodiversity, and CO2 as a critical factor for the real estate industry—in a sense, the circle has come full circle in Cologne, tying back to the three previous topics of “LIST auf den Punkt.” The selection of our discussion panelists alone made it clear how all the key players and stakeholders in the industry influence one another. In addition to our “LIST auf den Punkt.” speakers from the financial sector (Michelle Pigulla (formerly Fischer), Berlin Hyp) and the innovation drivers (Markus Steppler, DERIX Group), Sebastian Theißen (LIST Eco) and Tim Schlüter, Head of Direct Real Estate at the asset manager Ampega Asset Management, were also in attendance. So, let’s take a seat on the “LIST auf den Punkt.” sofa and dive into the discussion:
Where do asset managers currently stand on the topic of circularity?
Tim Schlüter: As a portfolio owner, to be honest, there isn’t a business model yet, and one isn’t in sight. Of course, we’re engaged with the topic, but we’re also “just” portfolio managers. We acquire assets and optimize them within our portfolio. At the moment, we’re asking ourselves questions about circularity in a theoretical context. But we haven’t moved beyond this conceptual stage yet. When we’re buying into project development again, have to decide between Project A or B, and discuss the criteria, circularity will certainly be a factor.
What matters most? What questions will the finance department need to ask about project development in the future?
Michelle Pigulla: We’ve deliberately divided things into the categories of new construction, renovation, and existing buildings. When someone is building something new, the question of a building resource passport comes up. We ask: Are you doing anything in this area? Is there any data at all? This is how we open the conversation and show that, as a bank, we’re interested in where the customer stands. But this can only really take off once a certain amount of data is available. Only then are we in a position to evaluate and validate it. There are many different types of material passports being created, along with various calculation methods. Only when I can evaluate it can we move into a substantive discussion.
What’s the problem? Don’t we already have enough data from our existing tools?
Sebastian Theißen: We have a broad vocabulary that’s difficult to compare in practice. We’re still at the point where, at best, we have a market standard for circularity assessment. The previous government announced a digital resource passport, but that hasn’t materialized. There’s a sense of uncertainty and a lull. It’s difficult to gauge whether and how things will move forward. In theory, we’ve once again created a perfect tool, but in practice, it isn’t entirely applicable. As soon as we have a standard, things will get easier. The key is sharing information.
Why not more often? Manufacturers are the key. Why aren’t there more companies and innovation drivers working the way DERIX does?
Markus Steppler: That also depends on the business model. Our business model is to buy wood from the forest via the sawmill and use it to carry out construction work. When you realize that resources might become a bit scarcer over the next 20 years, you start to ask yourself: What is my resource? Where does the raw material come from? No longer just from the forest, but also from the technical cycle. We want to take back as much as possible so we can reuse it. There’s an economic rationale behind this. Why doesn’t everyone do this? It starts with regulations: Try reinstalling an electrical outlet somewhere else. You can’t do that because it would cause the outlet to lose its certification. So the ball is also in the court of policymakers, who—thanks to the Circular Economy Act—already hold the keys in their hands. If you actually specify in the request for proposals that all materials must be taken back, or that carbon credits are available, then before you know it, the industry will be grappling with these issues and finding solutions.
What has developed positively in recent years, and who is the real obstacle in practice?
Sebastian Theißen: A very strong awareness has developed, which really gained momentum with the EU Taxonomy. That was the kick in the pants the industry needed. The demand for building resource passports, for example, has increased—including from public contractors. It’s also increasingly about how to extract information from existing buildings to make a decision about demolition or renovation. This needs to be promoted even more. In Germany, the biggest obstacle is, above all, time. You want to do something, but the excavator for demolition is already scheduled to arrive in three weeks. By then, it’s often too late to go through the building and see what can be salvaged and reused. Cost-effectiveness is the other major issue. You often find some building components that can be reused exactly as they are. But that’s not yet a critical mass. So the existing building stock still needs time for awareness and reuse options to develop further.
Interjection: New construction, preserving existing buildings, renovation—so which is it? Do real estate projects have what it takes to make a real impact?
Tim Schlüter: The crucial question is what we’ll even be able to invest in at all in the future. What should we base our investment strategy on? Right now, the entire discussion is still very much centered on project development and new construction. I believe we need to shift the focus to the existing building stock. The extremes at either end of the spectrum are still so far apart that it’s really hard for property owners to know where to start. The only trigger can be the future preservation of a property’s value. But that’s actually a moot point, because the issue is inherent. It’s clear that a non-sustainable property that isn’t energy-efficient will lose value. For us as property owners, our only option is to manage it in a way that’s inherently resource-efficient.
Closing Round: Let’s talk again, ...
Tim Schlüter: … Michelle. I’d like to discuss how much the risk premium is between ESG financing and standard financing. Markus Steppler: … Tim. I’d be happy to follow up with you to ask what the driving factors are and what the framework conditions need to be for this to become a viable investment case. Sebastian Theißen: ... Tim. I’d also like to talk to you about the portfolio and what information is needed, as well as what we can already provide. Michelle Pigulla: ... Markus. I’d love to talk to you about the added value for the owner—the fact that they’re often completely unaware of the value they actually possess. That’s exactly the missing link for us as a bank. People who apply for financing with us sometimes don’t even realize what treasures they have there. So how do we ensure that this information is passed on to us so we can work with high-quality data? Then we’ll have the data we need.
Final Round: We need to get this moving now.
Tim Schlüter: We shouldn’t always view the circular economy as a burden, but rather as an incentive system—and thus as a matter of course. The issue is so obvious that we simply have to take action. Markus Steppler: We always look to the Netherlands. They’re five years ahead of us when it comes to sustainability. What’s happening there right now will reach us in five years. I’d love to implement a project involving a project company with shareholders, where materials—not money—flow. That’s coming next; I’d like to predict that. Sebastian Theißen: I’d absolutely love to create a real-world project and a showcase that demonstrates that circular construction is also economically viable. We’re currently working on calculating all the details—taking every parameter and influence into account—and comparing the results. We want to think as ambitiously as possible in terms of circularity and back that up with facts and figures. We need proof that it’s possible. Michelle Pigulla: We need to push for more dialogue. We’ve also noticed here at “LIST auf den Punkt.” that there’s a wealth of knowledge, data, and potential solutions out there—they just need to be connected. That’s the positive aspect. We don’t have to invent the solutions; we just need to find the right levers to pull. If we’re all ambitious, we have a chance to get this done at the right pace.
Our takeaway from Jürgen Utz: Out of the dilemma, into collaboration!
“The relevance of materials to our CO2 emissions and biodiversity is central—and thus circularity is set to become a key success factor. After all, the 2040 climate targets will be difficult to achieve with buildings that were not constructed or renovated in a circular manner. This is a real risk factor, especially since the consumption of new resources must be drastically reduced anyway. It is therefore essential to put the logic of the circular economy and the financial sector’s requirements for the necessary transformation into practice now. Otherwise, stranded assets will arise not only due to CO₂ emissions from operations but also because of a lack of circularity—as soon as demolition or retrofitting is no longer cost-effective because the materials cannot be reused in the cycle. All stakeholders must now take action to remove the structural barriers. Banks need data so that circularity can be factored into their valuations. Manufacturers and planners can already provide a great deal of data. At the same time, building owners are more likely to invest when the added value is clear. We must now work together to resolve this “chicken-and-egg” stalemate. It is time for investors to make the business case a reality; otherwise, policymakers will have to intervene.” More on “LIST auf den Punkt” regarding circularity
When people talk about the circular economy, they’re also talking about CO2 allowances. Is offsetting through allowances and carbon credits also of interest to banks?
Michelle Pigulla: The principle is actually brilliant. The question is whether our colleagues see this as a value-adding factor in their assessments. They always ask: Is the market willing to pay more for the building? Here, too, we need a large volume of data. It’s not enough to have a single building where that’s the case. If there are two equivalent buildings, one of which includes the certificate system as an added benefit and the other does not—is the market willing to pay more for it, and does that make the building more valuable? We can quantify the differences in value, for example in terms of energy efficiency. Once we’ve got the hang of it, that needs to be factored into the valuation as well. There are various components that can be adjusted: a risk component, a value component, and a margin component. The real value lies in pure value advantages. Sebastian Theißen: The state of North Rhine-Westphalia did exactly that. This allowed the district of Viersen to write off the residual value of raw materials at the district archive. That was a huge advantage for them in real estate valuation. This is the flagship project. For once, the public sector moved faster than the private sector and issued this decree. The Viersen district is now building on this and even taking it a step further. For example, the residual values of raw materials in MEPs are also to be included in the valuation. It’s exciting to see just how innovative a single district is already being in this area.
