INREV has published a new paper, ‘Integrating environmental considerations in real estate underwriting: Assessing impacts on value and returns’, as part of Phase 2 of this important industry initiative.
The paper explores, for a limited number of assets, whether specific environmental data inputs can be linked to financial outcomes using a standard discounted cash flow (DCF) methodology, and if there are any broader implications.
Some key findings in the paper 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.
While this approach responds to the industry’s demand for greater transparency and clearer quantification, structural challenges such as data gaps, inconsistent methodologies and varying regulatory requirements remain.
Download the full paper below or find out more on our dedicated page.
Environmental considerations in underwriting
Published on 29 Apr 2025