This paper sets out key investor asks for banks on real estate decarbonisation and climate change preparedness across five focus areas. The high-level asks aim to support investor engagement with banks on their strategies for decarbonising commercial and residential real estate investments.
The real estate sector is a major contributor to carbon emissions, with buildings and construction accounting for almost 42% of annual global greenhouse gas emissions. To align with the International Energy Agency’s Net Zero Emissions (IEA NZE) scenario, building sector emissions must fall by roughly 9% annually until 2030.
Given the long lifespan of real estate, action this decade is crucial for meeting emission reduction targets.
Banks’ real estate portfolios are significantly exposed to various climate-related risks, including physical risks from extreme weather events and transition risks from non-compliance with regulations like the EU’s Energy Performance Building Directive (EPBD) or New York’s Local Law 97. Climate risks may also represent a source of systemic risk, impacting the global banking system and broader financial stability.
Alongside managing risk more effectively, banks are uniquely positioned to benefit from the economic opportunities associated with funding retrofits for the 80% of buildings that will still be in use by 2050. Investors want to see banks proactively encourage their real estate clients to invest in decarbonisation and resilience measures to address climate risks.
Investors seek greater visibility of the climate risks embedded in real estate financing. Many banks are highly exposed to real estate, with a substantial portion of their loan portfolios secured by property. Understanding the climate-related risks associated with a bank’s real estate exposure is crucial for investors.