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Environmental considerations in underwriting

Investors and managers across Europe are setting ambitious ESG strategies, however, they struggle to translate those strategies into tangible financial outcomes. INREV has assembled a dedicated ESG Valuations Focus Group to bridge this gap by helping the industry better understand how ESG goals impact underwriting inputs and expected returns.

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As part of Phase 2 in this initiative, INREV's paper ‘Integrating environmental considerations in real estate underwriting: Assessing impacts on value and returns’, explores whether specific environmental data inputs can be linked to financial outcomes using a standard discounted cash flow (DCF) methodology. 

Key findings include:

  • Improvements in energy efficiency showed the clearest payback effects. Changes in asset value as a result of investment programmes reflected a combination of environmental assumptions and broader market dynamics, making it difficult to isolate value shifts to environmental interventions alone.
  • Gaps in ESG data and limitations in assumptions around yield movements and Opex savings constrained the analysis. Separating environmental Capex proved challenging, as many upgrades serve multiple purposes.
  • Five principles were identified: engaging valuers on key environmental factors, estimating sustainability-linked Capex and assessing payback, defining testing scenarios, prioritising interventions to mitigate ESG risks, and enhancing transparency of assumptions. This approach can give insights into likely impacts on asset strategies.
  • More consistent definitions, better data collection and exchange, and greater transparency around assumptions can be promoted by strengthening collaboration between investors, managers, and valuers.
     
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In the press

INREV builds foundations for improved ESG underwriting process

15 May 2025 - INREV
The European Association for Investors in Non-Listed Real Estate Vehicles (INREV) today shared a progress update on its ESG Valuations Focus Group, which is working to address the integration of Environmental, Social, and Governance (ESG) factors into real estate investment valuations and underwriting.
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What membes say about the paper

Andreas L. Farberg

Andreas L. Farberg, Investment Manager Global Real Estate, KLP

‘Quantifying the financial value of implementing sustainability measures in real estate assets can help investors identify more win-win solutions.'

Aneta Rusiniak

Aneta Rusiniak, Invesco

‘This paper brings useful clarity to how environmental factors can be assessed within underwriting. As regulations and market expectations around sustainability evolve across Europe, consistent data and transparent assumptions are vital. The framework supports more robust consideration of ESG factors and helps investors make informed, forward‑looking decisions.'

Rudy Verstappen

Rudy Verstappen, Team Lead ESG, Altera

‘This paper is valuable because it brings greater structure and transparency to underwriting. It helps make environmental considerations more explicit and provides a stronger basis for dialogue, challenge and decision making across investment and valuation processes.'

Aleksandra Njagulj

Aleksandra Njagulj, DWS

‘The market will not value sustainability consistently until there is a broader industry agreement on which factors matter, how they should be measured, and how they should be reflected in underwriting and valuation. The INREV initiative is helping the industry to move in this direction. Without that common framework, market participants are not competing on equal terms, and the industry’s progress on sustainability remains slower and less effective than it should be.’

 
 
 

Dedicated Focus Group

The group comprises senior experts from across the industry, such as investment managers, institutional investors, valuers, and representatives from the Big Four accounting firms.

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