While the majority of real estate companies now have mechanisms in place to quantify the costs of decarbonization, significantly fewer are able to quantify the risk and costs of inaction.
As energy and carbon-related regulations tighten, user and investor expectations evolve, and markets continue to adapt, these changes are becoming increasingly important financially. However, traditional investment models often struggle to consistently reflect future market changes, for which there are neither historical benchmarks nor established valuation methods. Therefore, while the costs of decarbonization are often visible in investment assessments, the potential costs of inaction are much more difficult to quantify.
To address this challenge, ULI Europe’s C Change program has launched “Preserve” : a new, open-source-based tool that helps investment and asset managers assess how future market and regulatory changes related to the transition to a low-carbon economy could impact the performance and value of real estate.
Designed to integrate with existing discounted cash flow (DCF) models, “Preserve” provides a practical and consistent methodology to compare the financial impact of different decarbonization pathways and future market scenarios.
The methodology was tested on real properties and portfolios of leading investment companies in the real estate industry. The development of the tool was made possible by the support of a broad industry network, whose funding, contributions and field tests were crucial.
The C Change partners and the pioneering organizations of “Preserve” include Arup, Catella, Hines, IPUT, JP Morgan Asset Management, La Caisse, PIMCO and Redevco. C Change’s supporters include Bouwinvest, COIMA, Oxford Properties, Sonae Sierra and Urban Partners. Other pilot organisations include Invesco, Land Development Agency, Nuveen, PATRIZIA, PGIM and Swiss Life.
The development was also characterized by extensive cooperation within the real estate industry. More than 200 experts participated in workshops, interviews and working groups to ensure that the methodology is practical, resilient and aligned with the actual decision-making processes in the investment sector.
Preserve was developed by ULI Europe and sustainability analysis company Synergetic , together with technical partners Mott MacDonald and CBRE .
Sabine Georgi, Managing Director of ULI in Germany, Austria and Switzerland: “The special feature of the tool is the combination of DCF procedures with the standard assessment of climate risks, which makes them quantifiable in the first place and thus provides a better basis for decision-making for investment decisions.”
Simon Durkin, CEO ULI Europe, concludes: “With the ongoing geopolitical volatility creating uncertainty in the markets – including the consequences of the current energy crisis – it is clear that investors need to plan for a variety of possible future scenarios. Decision-makers must act with foresight and focus on their overall future risk profile. You need to be able to assess the financial consequences of inaction, as these can affect the performance and resilience of real estate. In addition, they must be strategically prepared to ensure value retention. Investors need a fundamental change of perspective in dealing with the effects of climate transformation. Otherwise, they risk underestimating their risk profile and being surprised by markets and governments that are increasingly moving towards a low-carbon economy. ́Preserve ́ offers a crucial solution for this. But as with any hands-on tool, its long-term success and effectiveness will depend entirely on whether the industry adopts and actually uses the tool.”
“Preserve” will support the widespread introduction of the C Change Transition Risk Assessment Guidelines in the European real estate market and is designed as an industry standard in the future.
While the initial deployment of “Preserve” is focused on Europe, ULI plans to expand the tool’s scope to North America, building on the growing interest of the international investment community.
