While most real estate companies have established mechanisms to quantify the costs of decarbonisation, there are shortcomings in assessing the financial risk and cost of inaction. The increasing tightening of energy and carbon-related regulations, as well as evolving expectations from users and investors, lead to significant financial relevance for these developments. Traditional investment models, however, reach their limits when it comes to consistently reflecting future market changes for which neither historical benchmarks nor established valuation methods are available.
The costs of decarbonisation are often visible in investment valuations, whereas the potential costs of inaction are more difficult to quantify. To address this challenge, ULI Europe's C Change programme presented the introduction of "Preserve". This new, open-source based tool is designed to enable investment and asset managers to assess the impact of future market and regulatory changes in the transition to a low-carbon economy on property performance and value.
How Preserve Works and Its Development
"Preserve" is designed for integration into existing Discounted Cash Flow (DCF) models and offers a practical methodology to make the financial implications of different decarbonisation pathways and market scenarios comparable. The methodology has been tested using real properties and portfolios from leading investment companies in the real estate sector. The tool was developed by ULI Europe and Synergetic, a company specialising in sustainability analysis, in collaboration with technical partners Mott MacDonald and CBRE.
Over 200 experts from the real estate sector contributed to the development through workshops, interviews, and working groups to ensure a practical and robust methodology aligned with investment decision-making processes. The development was made possible by the support of a broad industry network. Arup, Catella, Hines, IPUT, JP Morgan Asset Management, La Caisse, PIMCO, and Redevco are named as C Change partners and pioneering organisations of "Preserve". Supporters of the C Change programme include Bouwinvest, COIMA, Oxford Properties, Sonae Sierra, and Urban Partners. Further pilot organisations include Invesco, Land Development Agency, Nuveen, PATRIZIA, PGIM, and Swiss Life.
Significance for the Real Estate Industry
Sabine Georgi, Managing Director of ULI in Germany, Austria, Switzerland, highlights that the tool combines DCF methods with the standard assessment of climate risks, thereby making them quantifiable and creating a more precise basis for investment decisions. Simon Durkin, CEO ULI Europe, explains the necessity for investors to consider diverse future scenarios given geopolitical volatility and the energy crisis. He stresses that decision-makers must act proactively and evaluate the financial consequences of inaction to avoid value losses and secure the resilience of properties.
Investors need a fundamental shift in perspective regarding the impacts of climate transformation to avoid underestimating their risk profile and being surprised by evolving markets and governments. "Preserve" offers a solution for this. The long-term success and effectiveness of this instrument depend on its adaptation and use by the industry. "Preserve" aims to support the widespread adoption of the C Change Transition Risk Assessment Guidelines in the European real estate market and is designed as a future industry standard. ULI plans to extend the tool's scope beyond Europe to North America.
