The net zero imperative has been on the agenda for years, but climate transition risks are now emerging as a material concern for real estate investors, developers, and other stakeholders. Understanding and addressing climate transition risks in financial models is no longer optional; it’s a crucial step toward safeguarding assets and protecting their long-term value.

What is Transition Risk?

Transition risks represent the potential for the shift towards a low-carbon economy to affect financial returns in the property sector. In 2023, the Urban Land Institute developed the Transition Risk Assessment Guidelines, a playbook for evaluating how the climate transition may affect financial returns and operations in real estate. 12 factors were identified which variously impact financial performance and portfolio risk exposure – including carbon pricing, the cost of decarbonisation, new regulatory requirements, energy costs, and access to insurance and debt capital. Collectively, these factors have the potential to drastically increase or erode portfolio returns at scale.

How is Transition Risk being addressed?

In 2024, ULI commissioned Synergetic, in collaboration with CBRE and Mott Macdonald, to develop Preserve – an open-source tool for consistently and transparently quantifying transition risks in discounted cash flow models (DCFs), aiming to facilitate the implementation of the Transition Risk Assessment Guidelines.

The first step was to understand how the industry is currently handling these risks. in investment models. We ran a series of workshops, carried out deep-dive interviews, and surveyed stakeholders to find out the challenges and ‘pain points’ associated with financial decision-making with respect to transition risk.

The results yielded some crucial insights – one of the most important being the ‘information divide’. On the one side, you have independent, external ‘Red Book’ valuations – which are mainly based on past transaction data. On the other side, you have internal investment appraisal models, where – according to our findings – 38% of managers are already trying to factor in future transition risks. There are two conclusions to be drawn from this.

First, there is an unequal playing field. Some investors and asset managers are already adjusting their investment models for transition risks, while other are not. This means that current valuations do not consistently account for these risks, which can lead to a ‘carbon mispricing bubble’, increasing uncertainty and leaving the market vulnerable to abrupt pricing corrections in the future.

Second (and partly due to the first), the lack of standardised methodology to quantify the financial impacts of transition risks makes it harder to make the business case for investing in decarbonisation measures, slowing down the flow of capital into necessary upgrades and retrofits. Creating consistency in how transition risks are assessed is critical to the delivery of a net zero property sector.

A new model for Transition Risk

Preserve can help the industry address some of these challenges, and in our analysis, we defined three key requirements for this tool:

1. Improving Understanding: Most property investment professionals aren’t (usually) decarbonisation experts and often ESG and investment teams speak in different languages. Preserve aims to help create a shared framework, so both sides can see what the climate transition means for investment models.
2. Creating Consistency: The approaches to reflecting the climate transition in financial models have been inconsistent across different organisations, making evaluating investment opportunities difficult. Preserve will provide a common framework and shared assumptions, so we can evaluate investments on a level playing field.
3. Reducing Complexity: There are so many tools, policies, and systems involved in the climate transition that the learning curve is steep with low ‘return-on-effort’. Preserve needs to make the inclusion of transition risks easy for investment professionals and operate within their existing workflows.

Development started in early 2025 with an Excel-based workbook which connects seamlessly to completed DCF models and net zero pathways to provide a consistent assessment of financial transition risk.

Designed for property investment professionals with limited knowledge of decarbonisation, the tool prioritises ease of use and helps investment and asset managers systematically map out how transition risks could impact their portfolios.

With 48 different base scenarios, probability-weighted modelling, and the option to customise assumptions, Preserve combines transparent and consistent transition risk quantification with the ability to test out sensitivities. At the core of this tool are the Preserve ‘adjustment factors’: assumptions relating to how market dynamics impact on vacancy, rental rates, and exit yields. To formulate these assumptions, we combined evidence from more than 180 reports and academic studies with 2,000+ data points gathered directly from industry professionals. While any future-facing projections are always subject to uncertainty – especially when focused on emerging and fast-evolving trends such as transition risk – the aim of our research is to create a standardised framework which allows investors to make informed decisions while exploring the potential impacts of different scenarios on DCF modelling.

Testing began in June 2025 with a group of six pioneering asset managers. Over the coming months, a wider pilot programme will see Preserve’s assumptions, functions, and interface fine-tuned to improve value-add and ease of use.

Finally, the finalised version of the tool will be launched as an open-source tool, helping the real estate industry to develop a better understanding of transition risks, level the playing field, accelerate climate action, and safeguard the value and stability of property investment portfolios.

Getting to grips with the Net Zero transition 

Transition risks workshop at the C Change Summit

The impacts of the net zero transition on investment returns is likely to be significant. They are also very difficult to assess. Preserve will help the industry ability to quantify transition risk in a consistent way, but until the tool is fully rolled out, what can asset managers and investors do?

Here are four practical starting points:

1. Read the C Change Transition Risk Assessment Guidelines. They provide a clear framework for considering transition risk in financial models and are a useful starting point for those looking to incorporate specific transition risks such as carbon pricing or energy costs.
2. Check out our Real-World Case Studies. To encourage adoption of the Transition Risk Assessment Guidelines at scale, we worked with ULI members to test them on real assets and shared the results in a series of case studies.
3. Join the Preserve Pilot Programme. Gain early access to the tool, understand how transition risk impacts your assets, and help shape the future open-source version. Learn more at about the Pilot Programme and if you are interested in participating, get in touch.
4. Get Involved in C Change. The Urban Land Institute’s C Change programme is an initiative to accelerate decarbonisation across the real estate industry. Whether it is joining a webinar, attending the C Change Summit, participating in a working group, or becoming a C Change Partner company, the opportunities to learn, share, and mature your approach are plentiful.

Transition risks workshop at the C Change Summit

In Conclusion

As governments, investors, and occupiers increasingly prioritize net zero alignment, the potential financial implications of inaction are substantial – ranging from declining asset values and increased operational costs to reputational damage and limited access to capital.

For financial decision-makers in real estate, ignoring climate transition risks is no longer a viable option. By proactively identifying and mitigating these risks, real estate professionals can drive competitive advantage, enhance financial returns, and ensure alignment with both market expectations and global climate goals.

The time to act is now.

For further information on Synergetic’s work on Preserve or the contents of this article, please contact Derek Wilson, CEO of Synergetic, at [email protected]

For further information on the C Change initiative and opportunities for involvement, please contact Aleksandra Smith-Kozlowska, Research Director, ULI Europe, at [email protected].