By Grażyna Kuźma, counsel, from Domański Zakrzewski Palinka’s real-estate practice
Introduction
The real-estate sector accounts for about 40% of the EU’s energy consumption and 36% of its CO2 emissions, making it a critical focus area for sustainable finance initiatives. As the EU accelerates its environmental agenda through regulations like the Taxonomy, the CSRD, and the SFDR, financial institutions are developing various green financing instruments for real estate. However, the line between genuine sustainable financing and greenwashing remains blurred. In this article I present the spectrum of green real estate financing options, their regulatory foundations, and the challenges in distinguishing authentic sustainability efforts from mere marketing/PR exercises.
The EU Taxonomy provides the regulatory foundation for real-estate green finance. The EU Taxonomy Regulation establishes specific technical screening criteria for buildings to be considered environmentally sustainable. Consequently, for real estate financing to qualify as ‘green’, property must meet stringent requirements:
- New construction: primary energy demand must be at least 10% lower than nearly zero-energy building (NZEB) requirements
- Existing buildings: for buildings built before December 2020 – Energy Performance Certificate (EPC) class A, or among the top 15% of the national building stock
- For buildings built after December 2020: Meeting the criteria for new construction
- Renovation: either achieving 30% energy savings or complying with applicable requirements for major renovations under national implementations of the Energy Performance of Buildings Directive.
In Poland, these criteria create significant challenges, as much of the existing building stock falls well below these thresholds. Only about 8% of commercial buildings in major Polish cities currently meet Taxonomy alignment criteria, creating both barriers and opportunities for green financing.
CSRD implications for real estate financing
Under the CSRD, large companies – including real estate developers, property companies, and their financial backers – must disclose detailed sustainability information. For real estate finance, this means reporting on:
- Energy efficiency of financed properties
- Greenhouse gas emissions (including tenant activities for Scope 3)
- Climate adaptation measures
- Resource use and circular economy aspects
Financial institutions must disclose what percentage of their real estate portfolios align with Taxonomy requirements through the Green Asset Ratio (GAR), creating transparency that helps combat greenwashing.
Sustainable Finance Disclosure Regulation (SFDR)
The SFDR requires financial market participants to disclose how they integrate sustainability risks into their decision-making. For real estate financing products marketed as ‘green’ or ‘sustainable’, pre-contractual disclosures must detail environmental characteristics or objectives. Periodic reports must quantify achievement against these objectives and potential adverse impacts must be transparently disclosed.
These regulations collectively create the framework within which various green real estate financing instruments operate in Poland and across the EU.
Polish banks have begun issuing ‘green’ products, but with varying degrees of rigour in their qualification criteria.
An example of financing real estate projects that meet ambitious sustainability standards is Bank Pekao S.A.’s involvement in two major developments in Warsaw in 2024: Skyliner II and the first phase of the Towarowa 22 complex.
Unlike traditional green loans that focus on funding specific green assets, sustainability-linked loans (SLLs) tie financial incentives to the borrower’s achievement of predetermined sustainability performance targets (SPTs). For real estate, common SPTs include: reduction in energy intensity (kWh/m²); decrease in carbon emissions; improvement in green building certification levels; and increasded renewable energy usage.
If targets are met, borrowers receive interest-rate discounts; if missed, penalties may apply. This creates a direct financial incentive for improving property sustainability performance.
Green bonds for real estate
Green bonds designed specifically for real-estate projects have gained traction in Poland, with proceeds allocated to:
- Energy-efficient building development
- Major renovations improving energy performance
- On-site renewable energy installations
- Climate adaptation investments
These bonds follow the International Capital Market Association’s (ICMA) Green Bond Principles or the EU Green Bond Standard, requiring transparent reporting on fund allocation and environmental impact.
According to the information available on the market, Polish real-estate developers issued over €500m in green bonds in 2022-2023, primarily for commercial properties meeting EU Taxonomy alignment criteria.
Transition finance for real estate
Recognising that most existing buildings do not meet Taxonomy thresholds, transition finance has emerged as a crucial tool for the market. These instruments fund the gradual improvement of properties toward sustainability targets, even when they do not yet meet full green criteria.
Transition loans typically include:
- Stepped targets for energy efficiency improvements
- Roadmaps for decarbonisation
- Required investment in monitoring systems
Energy efficiency mortgages
The Energy Efficient Mortgages Initiative (EEMI) has established standardised frameworks for energy efficiency mortgages. In Poland, these products are growing in popularity for both residential and commercial properties, offering:
- Favourable terms for properties exceeding minimum energy standards
- Additional financing for energy-efficient renovations
- Standardised assessment methodologies.
The Polish real estate market presents specific challenges for green financing implementation, as much of Poland’s building stock is energy-inefficient, with around 70% of residential buildings having been constructed before 1990. Many properties lack proper energy performance documentation, making Taxonomy alignment assessment difficult. The premium for green buildings in Poland (between 3% and 7%) is lower than in Western European markets, affecting the economic case for green investments. Finally, the multiple competing certification schemes (BREEAM, LEED, DGNB, and local Polish schemes present on the Polish market) create confusion about which standards should define ‘green’. It should also be noted that there are major discrepancies between metropolitan areas like Warsaw, Krakow and Wroclaw and secondary markets in terms of green-building adoption.
Polish banks are addressing these challenges through stepped approaches, with Taxonomy alignment targets gradually increasing over time, and offering transition finance options for property owners committed to improvement paths.
The dark side…. greenwashing in real-estate finance.
Despite regulatory efforts, greenwashing remains prevalent in real-estate finance.
As Poland’s real-estate sector navigates the EU regulatory landscape, the opportunity arises to move beyond superficial greenwashing toward transformative finance that genuinely improves environmental performance. The future of real estate in Poland – and by extension, real estate financing—must be sustainable to be competitive and compliant. Financial institutions that can develop credible green financing products while avoiding greenwashing pitfalls will secure a significant competitive advantage in this evolving landscape. The question is no longer whether green finance will transform real estate, but rather how quickly and authentically this transformation will occur.
