How financing decarbonisation can support value creation in Real Estate

Historically, real estate has been a cornerstone of institutional investors' asset allocation strategies. Thanks to its capital-intensive nature and its ability to generate relatively stable long-term income streams, it continues to play a prominent role in the portfolios of insurers, mutual institutions and pension funds.
Among private market asset classes, real estate arguably has one of the longest institutional track records and has established itself as a core allocation alongside equities and fixed income investments.

The value of a real estate asset is fundamentally linked to its ability to generate strong and sustainable net rental income over time. However, in a rapidly evolving economic, regulatory and financial environment, preserving the long-term value of these investments requires a comprehensive understanding of the factors that may affect asset valuations.

For both asset managers and lenders, identifying the drivers that can preserve and enhance the value of real estate portfolios is becoming increasingly important, while also accounting for the emerging risks associated with the environmental transition. Traditional criteria such as location, building quality, service offering and suitability for local occupier needs remain essential. However, carbon performance is increasingly interacting with these factors and is becoming an additional determinant of tenant appeal and overall asset attractiveness.
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Improved energy efficiency can help reduce certain operating costs for occupiers, limit future refurbishment requirements and, ultimately, strengthen a building's competitiveness within its market. Conversely, insufficient consideration of a property's climate transition pathway may expose investors to a higher risk of obsolescence and value erosion.

In such a capital-intensive sector, financing the energy transition is therefore not solely a matter of regulatory compliance or corporate responsibility. It is also a key factor in strengthening resilience and preserving, or even enhancing, asset value.

Beyond the real estate sector itself, decarbonisation also contributes to the broader transformation of the financial system. By reducing exposure to carbon-intensive activities, it helps mitigate the risk of stranded assets, abrupt valuation corrections and concentrated losses across financial balance sheets. In doing so, it supports a more resilient financial system through a more sustainable and diversified allocation of capital, aligned with long-term economic trajectories compatible with climate objectives.
The challenge is particularly significant given the central role of buildings in Europe's climate transition. Europe's building stock is predominantly ageing and often energy inefficient. As a result, the sector accounts for a substantial share of the continent's energy consumption and greenhouse gas emissions, while also offering considerable potential for durable emissions reduction.

The paper available for download below aims to help investors better understand the decarbonisation challenges facing the real estate  sector and identify the key levers available to real estate financing providers to support and accelerate this transition.

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