Expert Guide on ESG in Real Estate in Slovakia

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Currently, there is a bill in the legislative process that aims to reduce emissions in the building sector. The bill on climate change is intended to align the legislative framework in the Slovak Republic with the framework in the European Union and to achieve the climate goals of Slovakia and the EU by 2030, as well as climate neutrality by 2050. 

In addition to emissions covered by the EU ETS, the building sector has a target to reduce carbon dioxide emissions by 12% compared to the 2018, 2019 and 2020 reference averages by 2030. 

EU measures significantly impact national legal systems, especially in the rapidly evolving ESG landscape. Building certifications like LEED and BREEAM are in vogue, driven by EU-based standards. Construction laws and technical standards are ever-changing, requiring substantial investments to meet EU ESG criteria. 

The new Slovakian construction law, effective from 2024, and compliance with the recast Energy Performance of Buildings Directive pose unprecedented challenges for the local construction market. Ongoing construction waste management reforms and green public procurement since 2022 contribute to sustainability goals. 

Renewables regulation has seen EU-level changes. Non-financial reporting and EU taxonomy categorization add responsibilities in terms of gathering and reporting ESG information, impacting finance acquisition. 

Developers must navigate social compliance, tenant rights, safety regulations, and sustainability under ESG laws. Balancing these factors, managing costs, and ensuring property performance is paramount. 

Act No. 555/2005 Coll. outlines energy efficiency requirements for new and sale/lease-bound buildings. 

Choosing the right project site is crucial for energy efficiency and ESG compliance in real estate. Key considerations involve: 

• A new Slovakian construction law effective from 2024 will impact permit processes and cover permits, energy efficiency, and ESG factors like solar panels and EV charging. 
• Municipal zoning plans emphasize efficient land use. 
• Environmental risks are registered for certain sites. 
• Projects may require time-consuming environmental impact assessments. 
• Building certification and energy-effective solutions are mandated. 
• Incorporating renewables enhances project appeal, but regulations have evolved. 

On the EU level, the Energy Performance of Buildings Directive (2010/31/EU) and the Energy Efficiency Directive (2012/27/EU) introduced the concept of nearly zero-energy buildings (NZEB).  

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, introduced the National Plan for promotion of NZEB. The National Plan includes financial measures and other incentives for promoting NZEB. 

Other related incentives include the development of renewable energy sources under Act No. 309/2009 Coll. on Promotion of Renewable Energy Sources and High-efficiency Cogeneration, as amended. It focuses on small, local and community renewables production.

Resilience of buildings is addressed by the legislative framework for construction, as well as the secondary legislation on the placement of buildings.  

Projects falling within the scope of Act No. 24/2006 Coll. on Environmental Impact Assessment must mandatorily undergo environmental impact assessment.  

Construction requires zoning and building permits which are issued in compliance with zoning plans. Under the new construction law effective as of 2024, the system of obtaining permits and EIA clearance will be consolidated into fewer steps.  

The specific requirements for waste treatment are set out in Act No. 79/2015 Coll. on Waste, as amended, and the Ministry of the Environment’s Decree No. 344/2022 Coll. on construction and demolition waste. The regulations allocate responsibilities to the originator of the waste, i.e. the holder of the construction permits. The originator must dispose of and recycle the waste. 

Increasing rates of recycling of construction waste is one of the priorities of the Recovery Plan. The aim is to increase recycling from 54% to 70% of the total volume of waste produced. All projects with over 300 sqm of built-up area will be required to recycle and reuse the materials from the construction site.

Safety rules have diverse legal sources. The primary safety regulations for construction sites are found in Government Regulation No. 396/2006 Coll. 

Worker safety in general is governed by Act No. 124/2006 on Occupational Safety and Health, with specific rules outlined in the Ministry of Labour, Social Affairs and Family's Decree No. 147/2013 Coll. 

Other relevant regulations include Government Regulation No. 392/2006 Coll. on working equipment safety, the Ministry of Labour's Decree No. 508/2009 Coll. on pressure, lifting, electrical, and gas equipment safety, and Government Regulation No. 395/2006 Coll. on personal protective working equipment requirements. 

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, sets out the requirements related to energy efficiency and certification. Specific features as well as other requirements for evaluation and certification have been published in secondary legislation. 

Apart from mandatory energy certificates, there are recognized voluntary certifications like BREEAM, LEED, etc., which are the most widely used value drivers in Slovakia for commercial office real estate. These certifications assess diverse criteria including sustainability, energy efficiency, materials, and air quality. While not obligatory, they can indicate ESG compliance and make the case for green financing under the EU Taxonomy Regulation. 

The legal framework for energy performance certificates and energy requirements is derived from EU directives transposed into national law. Certification is mandatory for new or renovated buildings and buildings which will be sold or leased by their owners. 

Categorization is required even at the point of advertising. Property is ranked from A to G based on efficiency.

Depending on the type of installation and its placement, different laws may apply to obtaining all relevant permits, including construction permits. At the same time, small and local sources are either restricted in size or in their ability to feed electricity into the grid. Approval for rooftop photovoltaic systems depends on factors like location, zoning, and neighbours’ rights. 

Each new or renovated residential or non-residential building with more than 10 parking spaces has to have charging points, or infrastructure in place to install a charging point. 

Installing electric vehicle charging points may require informing or obtaining approval from regulatory bodies. Operation of commercial charging setups may entail an obligation to obtain a business license. 

Social and environmental criteria can be evaluated in certain public procurement tenders thanks to legal changes that became effective in 2022. 

Under Act No. 343/2015 Coll. on Public Procurement, contracting authorities may take into consideration environmental aspects when comparing price and quality in connection with the subject of the procurement. Green procurement is also a subject of the Action Plan and the Environmental Strategy, an initiative that proposes non-binding goals for promoting green public procurement.

Nationals of third countries will need a temporary residence permit in most cases. Obtaining permits for employing third country nationals is a complicated process, which will depend on whether it concerns a profession with a labour shortage. The Central Office of Labour, Social Affairs and Family publishes a list of occupations with labour shortages. 

This list of labour shortage occupations serves to speed up the administrative procedure for the employment of third country nationals. At the moment, construction-related labour shortages will depend on the region where the construction is to take place.

Decree No. 532/2002 Coll. of the Ministry of the Environment, which stipulates the details of general technical requirements for construction, addresses the issue of technical requirements for buildings used by people with special needs. 

New buildings need to have access at street level. Parking spaces have to include a section closest to the entrance reserved for people with special needs. The Decree also specifies further requirements which must be met. 

Currently, there is a bill in the legislative process that aims to reduce emissions in the building sector. The bill on climate change is intended to align the legislative framework in the Slovak Republic with the framework in the European Union and to achieve the climate goals of Slovakia and the EU by 2030, as well as climate neutrality by 2050. 

In addition to emissions covered by the EU ETS, the building sector has a target to reduce carbon dioxide emissions by 12% compared to the 2018, 2019 and 2020 reference averages by 2030. 

The emphasis on ESG issues has increased markedly. Investors involve ESG in their decision-making. ESG implementation is a strategy for increasing financial returns, part of a broader approach to risk management, and a means of protecting investments. 

Energy efficiency and emissions: Stringent energy and sustainability standards under national law determine compliance, potentially leading to costly retrofits affecting investment decisions. 

Tenant rights and social considerations: Adhering to social standards, health and safety rules, and ESG practices entails balancing these factors with investment goals. 

Liability and due diligence: In addition to legal and financial due diligence, ESG due diligence considering environmental and social liabilities has become an important part of real estate opportunity investment assessment before property acquisition. 

Sustainability disclosure and reporting: Compliance with the EU Taxonomy Regulation and reporting ESG performance entail rising expectations. 

Supply chain management is part of a regulatory trend which will certainly be one of the greatest ESG challenges for businesses in the coming years. Two EU directives which Slovakia will need to transpose are extremely important in this respect: the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive (which is in the proposal phase at the EU level). 

Green financing: Meeting green investment criteria poses challenges due to the EU Taxonomy Regulation requiring ESG integration into financing decisions. 

Act No. 555/2005 Coll. outlines energy efficiency requirements for new and sale/lease-bound buildings. 

Choosing the right project site is crucial for energy efficiency and ESG compliance in real estate. Key considerations involve: 

• A new Slovakian construction law effective from 2024 will impact permit processes and cover permits, energy efficiency, and ESG factors like solar panels and EV charging. 
• Municipal zoning plans emphasize efficient land use. 
• Environmental risks are registered for certain sites. 
• Projects may require time-consuming environmental impact assessments. 
• Building certification and energy-effective solutions are mandated. 
• Incorporating renewables enhances project appeal, but regulations have evolved.

On the EU level, the Energy Performance of Buildings Directive (2010/31/EU) and the Energy Efficiency Directive (2012/27/EU) introduced the concept of nearly zero-energy buildings (NZEB).  

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, introduced the National Plan for promotion of NZEB. The National Plan includes financial measures and other incentives for promoting NZEB. 

Other related incentives include the development of renewable energy sources under Act No. 309/2009 Coll. on Promotion of Renewable Energy Sources and High-efficiency Cogeneration, as amended. It focuses on small, local and community renewables production. 

ESG’s growing importance makes real estate financing pricier and tougher if there are no environmentally sustainable options for lenders. To earn this label, investments must align with the EU Taxonomy Regulation (2020/852), which defines eco-criteria for investments and bolsters sustainable finance. Sustainability assessment relies on specific delegated acts alongside the Taxonomy Regulation. In real estate, the EU Taxonomy Climate Delegated Act covers new buildings, renovations, maintenance, repair, and ownership acquisition. 

Most of the requirements remain voluntary when securing financing. 

ESG's growing influence is evident in real estate transaction agreements, impacting: 

Extended due diligence scope: Thorough environmental due diligence is crucial to assess potential risks and liabilities linked to the property. Compliance with regulations, contamination assessment, and energy efficiency evaluation minimize future environmental liabilities. 

Expanded warranty and liability regime: ESG matters significantly shape warranty and liability. Transparent ESG disclosure, circular economy, compliance with laws, certifications, sustainability, and ESG's impact on property value at exit are crucial considerations. 

Energy efficiency and retrofitting: Investors must assess property energy efficiency and retrofitting needs to meet energy targets. Balancing upfront costs, long-term savings, and energy performance standards poses challenges. 

Heightened MAC provisions relevance: Material adverse changes (MAC) rules have gained importance, allowing parties to address unforeseen circumstances affecting deal feasibility or value. 

Green financing and valuation: Accessing green financing and accurately valuing ESG attributes is complex. Navigating varied valuation methods and working with ESG-aware lenders is key. 

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, sets out the requirements related to energy efficiency and certification. Specific features as well as other requirements for evaluation and certification have been published in secondary legislation. 

Apart from mandatory energy certificates, there are recognized voluntary certifications like BREEAM, LEED, etc., which are the most widely used value drivers in Slovakia for commercial office real estate. These certifications assess diverse criteria including sustainability, energy efficiency, materials, and air quality. While not obligatory, they can indicate ESG compliance and make the case for green financing under the EU Taxonomy Regulation.

The legal framework for energy performance certificates and energy requirements is derived from EU directives transposed into national law. Certification is mandatory for new or renovated buildings and buildings which will be sold or leased by their owners. 

Categorization is required even at the point of advertising. Property is ranked from A to G based on efficiency. 

Depending on the type of installation and its placement, different laws may apply to obtaining all relevant permits, including construction permits. At the same time, small and local sources are either restricted in size or in their ability to feed electricity into the grid. Approval for rooftop photovoltaic systems depends on factors like location, zoning, and neighbours’ rights

Each new or renovated residential or non-residential building with more than 10 parking spaces has to have charging points, or infrastructure in place to install a charging point. 

Installing electric vehicle charging points may require informing or obtaining approval from regulatory bodies. Operation of commercial charging setups may entail an obligation to obtain a business license. 

The Corporate Sustainability Due Diligence Directive (CSDDD) aims to promote sustainability in business operations and basically requires certain companies to conduct comprehensive due diligence of their supply chain to identify, address, and mitigate certain environmental and social risks. Since the CSDDD is currently still at the drafting stage, it does not trigger specific obligations for real estate investors in Slovakia. However, as the CSDDD will need to be transposed into national law, many companies have already started with preparations to be compliant in time.  

Slovakia enforces ESG reporting under the EU Non-Financial Reporting Directive (NFRD), which was transposed via Act No. 431/2002 Coll. on Accounting. 

Currently, there is a bill in the legislative process that aims to reduce emissions in the building sector. The bill on climate change is intended to align the legislative framework in the Slovak Republic with the framework in the European Union and to achieve the climate goals of Slovakia and the EU by 2030, as well as climate neutrality by 2050. 

In addition to emissions covered by the EU ETS, the building sector has a target to reduce carbon dioxide emissions by 12% compared to the 2018, 2019 and 2020 reference averages by 2030.

The emphasis on ESG issues has increased markedly under pressure from tenants, employees, contractors, customers, regulators, and investors who involve ESG in their decision-making. Real estate owners/operators implement ESG in their strategy for increasing financial returns, as part of a broader approach to risk management, and as a means of protecting investments. 

Energy efficiency and emissions: Stringent energy and sustainability standards under national law determine compliance. 

Tenant rights and social considerations: ESG buildings are expected to gain momentum in terms of tenant demand and market rents. Tenants, especially large corporate tenants, are orientating their strategy towards ESG and renting in green buildings in order to achieve their own sustainability goals. 

Liability and due diligence: ESG due diligence considering environmental and social liabilities has become an important part of real estate opportunity investment assessment. 

Sustainability disclosure and reporting: Compliance with the EU Taxonomy Regulation and reporting ESG performance entail rising expectations.  

Supply chain management is part of a regulatory trend which will certainly be one of the greatest ESG challenges for businesses in the coming years. Two EU directives which Slovakia will need to transpose are extremely important in this respect: the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive (which is in the proposal phase at the EU level). 

Green financing: Meeting green investment criteria poses challenges due to the EU Taxonomy Regulation requiring ESG integration into financing decisions. 

Green leases: Green leases are not yet regulated by a specific law. Instead, landlords are developing their own set of guidelines regarding sustainable asset management, energy savings, green cleaning, indoor air cleaning, quality, sustainable purchasing, solid waste management, and water protection. 

Act No. 555/2005 Coll. outlines energy efficiency requirements for new and sale/lease-bound buildings. 

Choosing the right project site is crucial for energy efficiency and ESG compliance in real estate. Key considerations involve: 

• A new Slovakian construction law effective from 2024 will impact permit processes and cover permits, energy efficiency, and ESG factors like solar panels and EV charging. 
• Municipal zoning plans emphasize efficient land use. 
• Environmental risks are registered for certain sites. 
• Projects may require time-consuming environmental impact assessments. 
• Building certification and energy-effective solutions are mandated. 
• Incorporating renewables enhances project appeal, but regulations have evolved. 

On the EU level, the Energy Performance of Buildings Directive (2010/31/EU) and the Energy Efficiency Directive (2012/27/EU) introduced the concept of nearly zero-energy buildings (NZEB).  

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, introduced the National Plan for promotion of NZEB. The National Plan includes financial measures and other incentives for promoting NZEB. 

Other related incentives include the development of renewable energy sources under Act No. 309/2009 Coll. on Promotion of Renewable Energy Sources and High-efficiency Cogeneration, as amended. It focuses on small, local and community renewables production

Resilience of buildings is addressed by the legislative framework for construction, as well as the secondary legislation on the placement of buildings. 

The specific requirements for waste treatment are set out in Act No. 79/2015 Coll. on Waste, as amended, and the Ministry of the Environment’s Decree No. 344/2022 Coll. on construction and demolition waste. The regulations allocate responsibilities to the originator of the waste, i.e. the holder of the construction permits. The originator must dispose of and recycle the waste. 

Increasing rates of recycling of construction waste is one of the priorities of the Recovery Plan. The aim is to increase recycling from 54% to 70% of the total volume of waste produced. All projects with over 300 sqm of built-up area will be required to recycle and reuse the materials from the construction site. 

General safety rules with respect to workers are covered by Act No. 124/2006 on Occupational Safety and Health. Additionally, property owners are bound by regulations on health and safety protection in connection with the building. 

Robust consumer protection regulations promote fairness and transparency. However, green leases as such are not yet regulated by a specific law. Instead, property owners are developing their own set of guidelines regarding sustainable asset management, energy savings, green cleaning, indoor air cleaning, quality, sustainable purchasing, solid waste management, and water protection. In reality, the terms and conditions of a green lease are often not detailed in the lease agreement, only summarized in the building’s operating rules. Therefore, enforceability of ESG commitments depends on the validity of contractual arrangements. 

Act No. 555/2005 Coll. on Energy Performance of Buildings, as amended, sets out the requirements related to energy efficiency and certification. Specific features as well as other requirements for evaluation and certification have been published in secondary legislation. 

Apart from mandatory energy certificates, there are recognized voluntary certifications like BREEAM, LEED, etc., which are the most widely used value drivers in Slovakia for commercial office real estate. These certifications assess diverse criteria including sustainability, energy efficiency, materials, and air quality. While not obligatory, they can indicate ESG compliance and make the case for green financing under the EU Taxonomy Regulation

The legal framework for energy performance certificates and energy requirements is derived from EU directives transposed into national law. Certification is mandatory for new or renovated buildings and buildings which will be sold or leased by their owners. 

Categorization is required even at the point of advertising. Property is ranked from A to G based on efficiency. 

Depending on the type of installation and its placement, different laws may apply to obtaining all relevant permits, including construction permits. At the same time, small and local sources are either restricted in size or in their ability to feed electricity into the grid. Approval for rooftop photovoltaic systems depends on factors like location, zoning, and neighbours’ rights

Each new or renovated residential or non-residential building with more than 10 parking spaces has to have charging points, or infrastructure in place to install a charging point. 

Installing electric vehicle charging points may require informing or obtaining approval from regulatory bodies. Operation of commercial charging setups may entail an obligation to obtain a business license. 

Social and environmental criteria can be evaluated in certain public procurement tenders thanks to legal changes that became effective in 2022. 

Under Act No. 343/2015 Coll. on Public Procurement, contracting authorities may take environmental aspects into consideration when comparing price and quality in connection with the subject of the procurement. Green procurement is also a subject of the Action Plan and the Environmental Strategy, an initiative that proposes non-binding goals for promoting green public procurement. 

The Corporate Sustainability Due Diligence Directive (CSDDD) aims to promote sustainability in business operations and basically requires certain companies to conduct comprehensive due diligence of their supply chain to identify, address, and mitigate certain environmental and social risks. Since the CSDDD is currently still at the drafting stage, it does not trigger specific obligations for real estate investors in Slovakia. However, as the CSDDD will need to be transposed into national law, many companies have already started with preparations to be compliant in time.  

Slovakia enforces ESG reporting under the EU Non-Financial Reporting Directive (NFRD), which was transposed via Act No. 431/2002 Coll. on Accounting. 

Decree No. 532/2002 Coll. of the Ministry of the Environment, which stipulates the details of general technical requirements for construction, addresses the issue of technical requirements for buildings used by people with special needs. 

New buildings need to have access at street level. Parking spaces have to include a section closest to the entrance reserved for people with special needs. The Decree also specifies further requirements which must be met.