Key Impact Points:
- Financing shortfall: Over 90% of recent real estate debt lacks climate KPIs; JLL estimates $2 trillion needed for retrofits in the Global North.
- Lenders’ role: Financial institutions have a unique position to lead decarbonization through innovative funding solutions and risk management.
- Government action: Public-private partnerships and regulations are vital for boosting green finance and retrofitting efforts globally.
Financing the Low-Carbon Shift in Real Estate
The real estate sector must bridge a significant funding gap to align with net zero goals at a necessary pace and scale. According to JLL Research 2024 and BloombergNEF, this transition is not solely about capital but leveraging debt to drive meaningful action.
“Over 90% of the $5.8 trillion of real estate debt issued in the last five years has no climate key performance indicators (KPIs) attached.”
The Lenders’ Opportunity
Financial institutions, often seen as part of the climate problem, have a pivotal opportunity to change this narrative. Amid increasing climate risks and stringent regulations, lenders can spearhead decarbonization by retrofitting 80% of the buildings that will remain standing in 2050. JLL highlights that nearly $2 trillion in debt financing will be essential for office property retrofits in the Global North over the next 20 years. The EMEA industrial market alone will need $80 billion to upgrade structures over a decade old.
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Innovative Green Finance Solutions
The adoption of green finance remains limited despite the surge in net zero pledges. Only 7% of the $7.1 trillion in sustainable debt issued over the last five years targeted real estate, with just 12% of green bonds going toward building decarbonization. This reflects a need for better-aligned pricing and strategy among stakeholders.
One example is the Commonwealth Bank of Australia’s Green Buildings Tool, which offers free recommendations and cost estimates for decarbonization to clients, reducing initial consultancy expenses.
Data Challenges for Lenders
Banks often underestimate emissions risks, posing threats to loan portfolios and slowing large-scale retrofits. Accurate ESG data collection on buildings is critical to gauge future risks and avoid stranded assets. A JLL analysis of 46,600 buildings found that, without performance upgrades, 65% of offices and 75% of multifamily buildings face stranding risk by 2030.
Government Support: A Key Driver
Governments play a crucial role by establishing finance mechanisms, encouraging public-private partnerships, and enforcing transparent policies. Initiatives like the US C-PACE program and Europe’s Federal Subsidy for Efficient Buildings have shown early promise. More tax incentives, funded programs, and mandatory emissions disclosures can further stimulate investments in ESG initiatives.
“Transparency is another critical factor. JLL’s Global Real Estate Transparency Index 2024 highlights that many countries and states are now moving from voluntary guidelines to mandatory disclosures on buildings’ emissions performance.”
Urgency and Economic Benefits
As economic conditions stabilize, 2025 presents an opportunity to drive decarbonization forward. Aligning sustainability with financial incentives will not only protect asset value but also deliver operational savings. The shift will require collaboration among banks, borrowers, and regulators to standardize metrics and scale successful models.
The path forward, though complex, promises significant rewards for both the environment and industry stakeholders. The expertise and technology needed to decarbonize real estate are available; it’s time for coordinated action.
Related Article: Opportunities Abound in Energy Investment – From Fossil Fuels to Green Bonds: JP Morgan Private Bank
