Article 9: What Sustainability Classification Means for Real Estate Investors

If you've been reading about investment funds, you've likely seen terms like SFDR, Article 8, and Article 9. These come from EU regulation and indicate how a fund approaches sustainability.

For Greenman NEXT (NEXT) and Greenman OPEN (OPEN), an Article 9 classification under the Sustainable Finance Disclosure Regulation (SFDR) means sustainability is built into the investment strategy as a formal objective, not just a marketing feature.

What Is Article 9?
SFDR groups funds into three categories:

Article 6 – Funds that do not specifically integrate sustainability into their investment process
Article 8 – Funds that promote environmental or social characteristics
Article 9 – Funds that have a sustainable investment objective at their core and must meet detailed regulatory disclosure requirements

Article 9 is the highest level of sustainability classification under SFDR. It requires funds to have a measurable sustainability objective and to report regularly on their progress.

It's important to be clear about what this does and doesn't mean. Article 9 does not guarantee higher returns or lower risk, and not every investment must meet sustainability criteria. It does mean sustainability is part of decision-making, and funds must show how they pursue their stated objectives.

Article 9 funds are also subject to ongoing regulatory disclosure requirements under SFDR. This means regular reporting on sustainability metrics, which is publicly available to investors.

Why Sustainability Matters in Real Estate
According to the International Energy Agency, the buildings sector accounts for around 30% of global energy consumption and approximately 26% of energy-related CO₂ emissions.¹ Not only should real estate play a significant role in meeting Paris-aligned emissions targets, but commercial property is also operationally affected by a range of sustainability-related factors:

• Energy efficiency standards – Buildings with poor energy ratings may become harder to let or sell
• Carbon regulation – Emissions standards may impose costs on less efficient buildings
• Tenant sustainability targets – Many large tenants have their own net-zero commitments and are required under EU regulations to report on their carbon footprints
• Financing conditions – Some lenders offer better terms for sustainable assets
• Evolving building requirements – Regulatory standards for buildings are tightening across Europe

Buildings that are inefficient or environmentally outdated may face:

• Higher operating costs for tenants
• Reduced tenant demand over time
• Greater capital expenditure needs to meet future standards
• Potential regulatory pressure or compliance costs

By contrast, more energy-efficient and digitally managed buildings may be better positioned to remain attractive to tenants, retain value, and adapt to changing requirements over time.

For NEXT and OPEN, sustainability initiatives are designed to support long-term lease security, ongoing property relevance, operational efficiency, and risk management across the portfolio.

A Practical Example: Long-Term Leasing Partnerships
This dynamic can be seen in the relationship between landlords and tenants. Many large retailers track and report their carbon footprint, including emissions from the buildings they occupy. More efficient properties can help them meet these targets.

One example is a framework agreement between Greenman OPEN and EDEKA, one of Germany's largest supermarket groups. Sustainability upgrades such as photovoltaic systems, EV charging infrastructure, and smart energy management are being implemented across selected OPEN properties. Alongside these upgrades, long-term lease extensions have been agreed, rental terms have been strengthened over the extended period, and the weighted average remaining lease term has increased. Updated lease agreements have also supported higher property valuations, based on independent valuation assessments at the time.

Greenman NEXT is at an earlier stage of portfolio development, and similar frameworks with its tenants are an objective rather than an established programme. As the NEXT portfolio grows, applying the same approach to its tenant relationships is a core part of the long-term strategy.

It is important to note that such projects involve capital investment and carry execution risk. Financial outcomes are not guaranteed.

Additional Income Opportunities: Energy and Infrastructure
Sustainability initiatives may also create additional revenue streams beyond rental income. Through Greenman Energy (GME), EV charging and solar infrastructure has been installed at selected sites within some of Greenman's fund portfolios.

Current operational metrics include:

• 15 EV charging locations with 68 charging points
• 9 solar hubs generating renewable energy
• Solar covers approximately 52% of tenant energy needs at those locations

Scaling this infrastructure across the wider portfolio may reduce tenant's energy costs, strengthen landlord-tenant relationships and provide additional investor income over time. These initiatives are intended to complement, not replace, the core rental income of the properties.

What This Means for Investors
Sustainability considerations are becoming more prominent in European property markets. Regulation is evolving, tenant expectations are shifting, and building standards are tightening.

By integrating sustainability into investment decisions, NEXT and OPEN aim to maintain a property's relevance over time, support long-term tenant relationships, protect income-generating potential across different market cycles and manage regulatory and transition risks.

This approach reflects a view that sustainability considerations are increasingly part of prudent long-term real estate management – not a separate objective, but integrated into how assets are selected, managed, and improved.

Important Considerations

Before making any investment decision, please consider:

• Sustainability initiatives require capital investment and may not always deliver expected financial outcomes
• Property values can rise and fall, particularly in response to interest rate movements and economic conditions
• Tenant credit quality and regulatory changes can affect returns
• Revenue from EV and solar infrastructure depends on utilisation, energy prices, and market factors
• Real estate funds structured as AIFs and ELTIFs are long-term investments and are not suitable for investors who require short-term liquidity
• Past performance is not a reliable guide to future results
• Distributions are not guaranteed and may vary

This article is for informational purposes only and does not constitute investment advice. Investors should consider their personal circumstances, read the relevant fund documents including the Key Information Document (KID), and where appropriate, seek independent financial advice before investing.

Greenman Investments is authorised and regulated as an Alternative Investment Fund Manager (AIFM). The funds referenced in this article are Alternative Investment Funds (AIFs) regulated under the European ELTIF framework.

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