The Climate Is Speaking: CRE Underwriting for a Future That’s Listening

In this new environment, being a steward of real estate capital means embedding climate change into every investment decision by becoming climate fluent, from underwriting and acquisition to operations and exit strategy.

Climate fluency is mindset grounded in resilience and adaptability, not only to mitigate risk, but to unlock new forms of value that turns our climate reality into an asset strategy. For asset managers, that means incorporating resilience and adaption strategies into how we underwrite, choose, operate, and plan for the future. Put simply, becoming fluent in climate means reading, understanding and acting on well-known emerging risks and opportunities, building resilience with confidence, and allocating capital for performance.

OPERATIONALIZING RESILIENCE AND ADAPTABILITY

Resilience and adaptability are central concepts for real estate asset managers when addressing climate change. They form the foundation for both investment decisions and strategic planning.

Resilience is about readiness. This means being prepared today and requires acknowledging what we can already see around us and ensuring assets are prepared to withstand what has and will continue to change. It must be defined, measured, and translated into building-level decisions.

Take extreme heat as one practical example. It’s a clear and measurable signal. If a geography is experiencing more frequent and intense heat, and is projected to continue doing so, we need to incorporate that trend into asset-level underwriting and capital plans.

Choosing reflective roof coatings during a routine roof replacement, for instance, reduces a building’s internal heat gain, lowers HVAC loads, and extends the roof system’s lifespan. Improvements like this are operationally beneficial and bankable. At refinancing or sale, a documented upgrade like a cool roof differentiates a property in a market where heat resilience is increasingly scrutinized.

Incorporating such measures into standard scopes reduces the risk of these items becoming negotiation points or deal-breakers at disposition.

Adaptability is about evolution. It means moving beyond acknowledging climate risks to actively implementing strategies that both mitigate those risks and capitalize on opportunities presented by climate change.

In regions facing increasing water stress and rising utility costs, for example, adaptability might mean planning to invest in water conservation, leak mitigation technology and drought-tolerant landscaping ahead of price volatility and regulatory mandates.

This approach positions a property to stay ahead of compliance and manage costs more effectively through active engagement in building efficiency. This allows managers to shift from reactive to proactive. It begins by simply measuring to understand building environmental performance. With that data in hand, projected climate change impacts can be translated into operational cost controls and value growth. It’s planning to adapt to what is known today, to meet the need in the future.

Resilience anchors performance in the present, while adaptability sustains momentum into the future.  Together, they translate climate awareness into practical, investable action.

THE US ASSET MANAGER’S APPROACH TO CLIMATE FLUENCY

For US real estate investors, developing climate fluency is essential. It underpins performance evaluation, guides expectations, and reveals which managers are prepared to steward capital in an era of change.

Engaging meaningfully on climate with US asset managers involves examining how they monitor and adapt to local regulatory shifts. Given the highly fragmented US landscape, climate-fluent managers should maintain systems for tracking evolving local, state, and federal energy and emissions policies and for integrating these changes into capital planning and risk assessments.

Forward-looking financial modeling is another marker of climate fluency. This includes incorporating projected weather extremes, rising insurance costs, and decarbonization targets into asset-level modeling. Static proformas should be replaced by climate-adjusted scenarios that reflect assumptions about building performance over time.

Measurable environmental performance data forms the foundation of climate-informed decision-making. Benchmarking results, utility trends, and emissions inventories serve as evidence of operational performance improvements and effective risk management.

Integration of climate risk into underwriting and disposition strategy is equally critical. Asset managers should embed sustainability considerations into investment decisions, including capital expenditures, renovation scopes, and positioning for future buyers whose priorities are likely to be increasingly climate-focused.

Acquisition, refinance, and sale are equally critical moments for climate risk assessment, as each represents a capital market exposure event—what differs is who leads the process and the nature of the decision outcome.

Climate fluency is about investing in assets and teams that are ready to adapt, evolve, and lead. It requires data integration, forward-looking scenario planning, and intentional alignment between capital planning and projected climate realities.

A climate-fluent investor doesn’t stop at emissions disclosures or certification labels. They ask for:

• Scenario modeling under different climate futures, to see how asset performance and valuation may shift in best-case or worst-case projections.
• Integration of transition risks, such as carbon pricing, grid decarbonization, or code changes that impact retrofit costs.
• Evidence of long-term decarbonization strategies, not just one-time upgrades, but portfolio-wide plans to align with net-zero pathways.

With the arrival of climate change, climate fluency has become a core investment competency. The responses provided by asset managers when climate topics are raised reveal whether they meet the new definition of stewardship shaped by a changing climate.

THE EUROPEAN ASSET MANAGER’S PERSPECTIVE: FROM REGULATION TO RESILIENCE

When it comes to our diverse portfolio across Europe, we have witnessed firsthand how the convergence of climate volatility, inflationary pressures, and regulatory requirements are reshaping the real estate investment landscape. What was once considered “non-financial” risk is now central to underwriting, asset performance, and the long-term value creation.

Today, climate fluency is no longer a niche skill, it is a strategic need. The ability to interpret climate signals, anticipate regulatory shifts, and translate environmental data into actionable investment decisions (such as, for example, correctly evaluating the obsolescence risk, performing an informed valuation of portfolios etc.) is becoming a defining edge in a market that rewards foresight and resilience.

The real estate sector is particularly exposed to climate change globally, and Europe is no exception. Weather extremes (such as floods, heatwaves, wildfires) which are no longer rare events in Europe, but recurring stress tests on asset durability, tenant well-being, and operational continuity.

Just storms and floods alone, are estimated to have caused at least €18 billion in damages across Europe in 2024.[2] When looking at the wider picture, estimates show that, between 1980 and 2023, weather- and climate-related events have caused over €790 billion in economic losses across the EEA-38 region, underscoring the profound and escalating financial toll of climate change on Europe’s economy.[3]

European authorities have acknowledged the growing impact of climate change, prompting a continuous evolution of regulatory frameworks aimed at enhancing resilience, transparency, and sustainability.

In the European Union, new climate-related disclosure requirements such as the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), or the EU Taxonomy are reshaping reporting and sustainability obligations. These are complemented by updated real estate regulations, such as the energy performance standards linked to the revised Energy Performance of Buildings Directive (EPBD), as well as emerging frameworks addressing transition risk. For cross-border investors, this growing complexity demands both agility and a deep and market-specific insight.

In this context, our approach is evolving. We are embedding climate-adjusted performance metrics into our investment models, not as a compliance exercise, but as a core input to value and risk.

Technology is a key enabler. We leverage data platforms and benchmarking tools to identify value-at-risk across our portfolio, flagging assets with high exposure to physical or transition risks. This data-driven approach helps us target high-ROI interventions, whether it is retrofitting for energy efficiency, enhancing flood defenses, water use, and/or improving climate resilience.

For example, in a residential and flexible living development in Southern Europe, we prioritized an environmental strategy that addressed both rising cooling demand and stakeholder expectations for low-carbon living assets. The decision was guided by regional climate forecasts, anticipated regulatory tightening, and the need to mitigate obsolescence risks. As a result, the development plan prioritized achieving EPC ratings of A or B and securing green building certifications for all assets, while preserving affordability and tenant appeal.

In another case, a logistics and light industrial portfolio in Central Europe underwent a strategic capital reallocation. By integrating on-site solar energy systems, we improved energy resilience and enhanced the portfolio’s green premium potential.

But perhaps most importantly, we are shifting the mindset around underwriting.

Sustainability is no longer a post-acquisition consideration or a line item in reports. It is embedded in our process from the pre-investment perspective too. What we ask is how this asset will perform not just in today’s market, but in a future shaped by strengthening sustainability-related regulatory requirements, unexpected climate events, and evolving tenant expectations.

REDEFINING STEWARDSHIP IN A CLIMATE-CONSTRAINED WORLD

As we look to the future, the decisions we make today, how we underwrite, prioritize, and plan, will shape tomorrow’s returns and reputation. As stewards of long-term capital, we have a responsibility to ensure that our portfolios are not only compliant, but competitive in a climate-constrained world.

In a future that is always listening, the ability to “speak climate” fluently (through data, strategy, and execution), will define the next generation of real estate investment excellence. Climate fluency is not only about risk mitigation, it’s about unlocking new value, building resilience, and positioning portfolios for long-term success in a rapidly changing world.

Adaptability and resilience are emerging as critical differentiators across markets, from the regulatory-driven landscape of Europe to the increasingly climate-aware investment environment in the United States. Embedding these principles into portfolio strategy ensures that assets remain future-proof, responsive to evolving stakeholder expectations, and capable of thriving amid uncertainty.

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Note from the Editor: Issue #19

Mid-Year Pulse: Global Investors on the Economy, Energy, and Housing

Benjamin van Loon | AFIRE

Bend, Not Break: Investing in Real Estate Amid Economic Uncertainty

John Murray + François Trausch + Russell Gannaway + Kirill Zavodov | PIMCO

Test Of Time: How US Real Estate Withstands an Uncertain Investment Market

Riaz Cassum | JLL

Oh Canada: Why International Investors Might Want a Second Look at Canadian Real Estate Markets

Amy Erixon + Long Tang + Daniel Goldberg + Marie-France Benoit | Avison Young

Beyond Oil: Why Gulf Family Offices Are Doubling Down on US Logistics, Data, and Housing

Abbas Hashmi | Saudi Family Holdings

South of the Border: Higher Yields and Growth in Mexican Industrial

Shaun Libou | Raymond James

Migration Myth: NIMBYism and Why Coastal Movers Aren’t Affecting Sunbelt Housing Supply

Donal Warde | Consultant + Ron Bekkerman | Constellation Data Labs

Machine Center: The AI-Driven Transformation of Data Center Investment

Sam Chandan | Chen Institute for Global Real Estate, NYU Stern School of Business

AI in Commercial Real Estate: A Practical Guide for Industry Leaders

Armel Traore Dit Nignan + Shaarvani Kavula | Principal Real Estate

Artificial Control: Are You Ready for AI Management and Oversight?

Marie-Noelle Brisson + Michael Savoie | CyberReady, LLC

Capitalizing on Dynamics: Demographic Mega-Trends Impacting CRE

Stewart Rubin | New York Life Real Estate Investors

Mid-Cap Assets: An Under-Examined Segment in CRE

Asaf Rosenheim | Profimex

The Lifestyle Renter: A Growing Opportunity for Strategic Investment in High-Quality Apartment Communities

Hannah Waldman | The Dermot Company

The Climate Is Speaking: CRE Underwriting for a Future That’s Listening

Ines Diez + Thomas Stanchak | Stoneweg

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