Unlocking capital for sustainable real estate: the challenges facing Europe

These issues were at the centre of the discussion entitled “Show Me the Money! Unlocking the Capital Behind Sustainable Real Estate”, held at this year’s RICS Built Environment European Summit. Moderated by Linda Zeilina-Cross, CEO of the International Sustainable Finance Centre, the panel brought together representatives from Europe’s real estate finance, investment fund and asset management sectors.

The discussion highlighted a fundamental contradiction in the European property market: while requirements for building energy upgrades and climate resilience continue to increase, turning these requirements into financially viable and bankable investment projects remains a challenge.

Making Sustainability Financially Viable

Peter Cosmetatos, CEO of CREFC Europe, argued that sustainability must be more closely aligned with the financial realities of investment. Expressing reservations about the often ambiguous use of the term ESG, he stressed that investors ultimately need to understand whether a project can deliver an adequate financial return. Environmental improvements cannot be considered separately from implementation costs, expected returns and access to financing.

He also highlighted the growing importance of physical climate risks in property valuations and financing decisions. Floods, wildfires and extreme weather events are no longer merely environmental considerations; they can directly affect asset values, insurance premiums and the availability of bank lending. Investors, he argued, must incorporate these risks more systematically into their decisions rather than relying solely on broad sustainability indicators.

Cosmetatos also emphasised the role banks can play in accelerating energy-efficiency improvements across the existing building stock. Many property owners lack the technical expertise, resources and organisational capacity required to plan and deliver complex renovation projects. Banks could therefore go beyond providing finance by combining lending products with advisory services and structured renovation programmes.

The development of standardised procedures and repeatable solutions could reduce the cost and complexity of upgrades, making large-scale renovation more accessible to property owners.

Regulatory Stability Is Essential for Long-Term Investment

David Zackenfels, Senior Vice President Legal at the Association of the Luxembourg Fund Industry (ALFI), focused on the importance of regulatory predictability. Drawing on Luxembourg’s experience as an international fund management centre, he argued that a stable institutional framework is essential for attracting long-term investment.

Fund managers frequently make decisions with investment horizons extending over 10 to 20 years, while European sustainable finance requirements continue to evolve. Changes to disclosure obligations, investment product classifications and environmental assessment criteria can create uncertainty and complicate long-term planning.

Zackenfels stressed the need for clear, practical methodologies and consistent indicators that enable meaningful comparisons between properties and portfolios. Energy consumption, greenhouse gas emissions and building energy performance are central to this assessment, but their usefulness depends on reliable data and consistent measurement methods.

Capital expenditure requirements are another critical consideration. Upgrading existing buildings to meet stricter environmental standards can significantly affect investment returns. Investors must therefore assess not only a property’s current energy performance but also the additional investment it may require over the coming years.

Reliable Data and Technology as Investment Tools

Tamas Mark, Global Head of Real Assets at IQ-EQ, highlighted the growing role of technology in collecting and analysing information across real estate portfolios. Although specialised digital applications have made data collection easier, greater data availability does not automatically translate into better decision-making.

The main challenge lies in the reliability, consistency and verifiability of information collected from different sources. Managers of large portfolios must consolidate data across properties, countries and service providers, often using inconsistent reporting standards. Incomplete or inaccurate information can distort valuations and lead to poor investment decisions.

Technology can help mitigate these risks by automating data collection, processing and validation. However, the effectiveness of digital tools ultimately depends on the quality of the information entered into these systems. Establishing reliable and comparable datasets is therefore a prerequisite for more advanced analytical applications.

Mark expects real estate investment management to rely increasingly on predictive models and scenario analysis. These tools could help investors forecast capital expenditure requirements, compare alternative energy-efficiency measures and assess portfolios’ exposure to environmental and financial risks. Nevertheless, data collection and management costs remain a significant consideration, particularly as investors seek to control operating expenses.

Climate Risk Is Reshaping Property Finance

The discussion also highlighted the changing approach of banks and supervisory authorities to climate-related risks. Moderator Linda Zeilina-Cross pointed to the growing attention paid by the European Central Bank (ECB) and the Single Supervisory Mechanism to physical climate risks affecting bank portfolios and the energy-upgrade requirements of financed properties.

This shift has important implications for the property market. Buildings’ energy performance and climate resilience are becoming increasingly relevant to credit risk assessments, while banks face growing pressure to adapt their financing products to support the transition towards higher environmental standards.

Bridging the Gap Between Climate Ambitions and Investment Reality

A common theme throughout the discussion was the need to bridge the gap between Europe’s climate objectives and the practical investment conditions required to achieve them.

Meeting the EU’s climate targets for 2030 and 2040 will require substantial investment in building renovations, energy-efficiency improvements and supporting infrastructure. Delivering this investment at scale will depend on reliable data, predictable regulation and financially viable projects.

Regulatory stability was identified as particularly important. Frequent changes to reporting requirements and assessment standards can undermine long-term planning, while the absence of common methodologies increases compliance costs and limits comparability across investments.

Ultimately, unlocking capital for sustainable real estate requires more than ambitious climate targets. It calls for a framework in which investors can accurately assess risks, anticipate costs and identify credible financial returns. Aligning environmental objectives with commercial realities will be essential to accelerating the decarbonisation of Europe’s building stock.