While the majority of real estate organisations have the mechanisms to quantify the cost of decarbonisation, far fewer are able to quantify the risk and cost of inaction.
As energy- and carbon-related regulation tightens, occupier and investor expectations evolve, and markets continue to adjust, these changes are becoming increasingly financially material. However, traditional investment models often struggle to consistently reflect future market changes that have no historical precedent or established methodology for assessment. As a result, while the costs of decarbonisation are often visible within investment appraisals, the potential costs of inaction can be much harder to quantify.
To help address this challenge, ULI Europe’s C Change programme has launched Preserve, a new open-source, Excel-based tool that helps investment and asset managers assess how future market and regulatory changes associated with the transition to a low-carbon economy could affect real estate asset performance and value.
Designed to integrate into existing discounted cash flow (DCF) models, Preserve provides a practical and consistent methodology for comparing the financial impacts of different decarbonisation pathways and future market scenarios.
The methodology has been tested across live assets and portfolios by leading investment organisations active in real estate, with the tool’s development made possible through the support of a wide industry cohort, whose funding, input and testing have been critical.
C Change partners and Preserve pioneer organisations include Arup, Catella, Hines, IPUT, JP Morgan Asset Management, La Caisse, PIMCO and Redevco. C Change supporters include Bouwinvest, COIMA, Oxford Properties, Sonae Sierra, and Urban Partners. Additional pilot organisations include Invesco, Land Development Agency, Nuveen, PATRIZIA, PGIM and Swiss Life.
Its development has also been shaped by extensive collaboration across the real estate industry, with more than 200 experts contributing through workshops, interviews and working groups to ensure the methodology is practical, robust and aligned with how investment decisions are really made.
Preserve was developed by ULI Europe and sustainability analytics specialist Synergetic, together with technical partners Mott MacDonald and CBRE.
Aleksandra Smith-Kozlowska, Director, ULI Europe comments: “To protect and strengthen asset value, the industry needs to make future climate transition impacts financially visible. This will support better decision-making and ultimately unlock faster, earlier investment in decarbonisation. Preserve will provide investment professionals with the tools to incorporate and quantify the climate transition risk in their cash flow modelling in a standardised, consistent way.”
Tim Monger-Godfrey, Senior Director, Hines, comments: “One of the biggest challenges for our industry is understanding not just the cost of decarbonisation, but how future market changes could affect pricing risk and asset value. Preserve gives investment teams a consistent way to assess those risks across portfolios, helping identify where future risks and opportunities lie and integrate climate transition considerations into everyday investment decision-making.”
Sunita Mahant, Managing Director, La Caisse, comments: “As a long-term institutional investor, we see the value in tools like Preserve for providing a common methodology that can be used consistently across the industry. That consistency is essential to strengthening decision-making and integrating transition risk considerations into sound asset management and investment practices.”
Derek Wilson, CEO of Synergetic, comments: “Preserve helps investors understand the cost of climate inaction, and how investing in decarbonising buildings can protect asset value over the long term. It also creates consistency in how climate transition impacts are assessed across the real estate industry, improving comparability, reducing complexity and strengthening the business case for net zero carbon. The open-source nature of the tool ensures that this methodology is accessible to any asset or investment manager, levelling the playing field.”
Simon Durkin, CEO, ULI Europe, concludes: “With ongoing geopolitical volatility creating uncertainty in the market, including the consequences of the current energy crisis, it’s clear that investors really need to plan for a variety of future scenarios. Decision makers need to be forward-looking, focusing on their wider future risk exposure. They need to be able to assess the financial consequences of inaction, which can impact performance and resilience prospects. They also need to be prepared strategically to ensure value preservation. A mindset shift in how climate transition impacts are addressed is needed among investors – otherwise they might underestimate their risk exposure and get caught out by the markets and governments shifting towards a low-carbon economy.”
“Preserve provides a critical solution here. But, as with any practical tool, its long-term success and effectiveness will depend entirely on the industry adopting and using it.”
Preserve will facilitate adoption of the C Change Transition Risk Assessment Guidelines at scale across the European real estate market and, going forward, is designed to provide an industry-standard tool.
While initial deployment of Preserve focuses on Europe, ULI has plans to extend the tool’s application to North America, building on growing interest from the global investment community.
