According to the second annual C Change Survey from the Urban Land Institute (ULI), launched at this year’s C Change Summit, 93 percent of respondents report incorporating transition risks into their real estate investment decisions, indicating the industry’s growing awareness and commitment to integrate climate-related financial risks into decision-making processes.

However, there are also significant implementation challenges noted in the survey, with a lack of knowledge regarding the right methodology and datasets presenting a key barrier for 61 percent of respondents.

Aleksandra Smith-Kozlowska, Director, Research, Europe, comments, “This year’s survey results show that the overall business case for decarbonisation is clear, and transition risks are increasingly being incorporated into investment decisions. However, there are some significant barriers to implementation that the industry needs to deal with, and education, improved knowledge of methodologies and credible data are clearly all essential.”

The 2024 survey has captured data from over the past 12 months and updates the findings from the 2023 survey to provide insights into transition risk management and carbon pricing adoption, and the capital allocation strategies aimed at mitigating climate-related risks.

As with last year’s results, regulation related to minimum energy performance standards was the transition risk which concerned organisations the most. This year, 75 percent of respondents stated that some transition risks have increased in importance during the past 12 months, with the cost of decarbonisation and embodied carbon being a growing issue.

The vast majority (nearly 94 percent) of respondents to the 2024 survey also said that transition risks have impacted their portfolio strategy in the past year. 51 percent of organisations reported allocating capital expenditure to assets facing transition risks than to divest from them (30 percent). This potentially reflects low transaction activity and the challenges with selling such assets but may also indicate the commitment of many organisations to invest in retrofitting and decarbonisation initiatives, recognising that addressing transition risks head-on can enhance asset value and long-term viability.

The survey indicates that transition risks have continued to impact acquisitions, with 53 percent of organisations reporting halted acquisitions following a transition risk assessment, compared to 61 percent in 2023. Additionally, 58 percent reported acquisitions completing at a lower price following a transition risk assessment. The main reasons cited for both included assets requiring a high level of capital expenditure and concerns over asset stranding as the main drivers.

The industry’s rising awareness of carbon pricing as an effective tool for decarbonisation was also illustrated in the survey, with an increase of 21 percent in the number of respondents reporting using a voluntary, internal carbon pricing mechanism, showing a higher take up over the last 12 months among those polled. 71 percent of those companies are applying a shadow carbon price to evaluate the potential costs of carbon emissions, understand future risks, and build the business case for decarbonisation. Meanwhile, 18 percent are using a hybrid model (fee paying and shadow), and 12 percent are using a purely fee-paying model.

The lack of wider industry adoption of carbon pricing has been identified as the biggest barrier to implementation, indicating that there are concerns about the impact of early adoption of carbon pricing in relation to competitiveness. Additional barriers include a lack of buy in from key stakeholders, a lack of data and data consistency, and a lack of clarity on how financial performance and operational strategies can be influenced by carbon pricing mechanisms.

Respondents noted that the next steps to support carbon pricing across the industry will be improvements to understanding of carbon pricing mechanisms and best practice in industry guidance. In tandem with this year’s survey, ULI has also published “Accelerating accountability: the case for carbon pricing”, and “Universal Principles for Carbon Pricing in the Real Estate Sector” which outline the business case for carbon pricing and set out consistent principles for implementation that can be applied across the whole industry.

Sophie Chick, Vice President, ULI Europe, comments, “The growing adoption of carbon pricing revealed in our annual survey suggests an industry moving in the right direction, but transitioning to fee-based models will be essential to making meaningful progress towards effective decarbonisation measures, and this will entail standardised approaches to pricing and improved data.”

Download the C Change survey here.

Contact [email protected] if you’re interested in supporting the development of C Change or would like to find out more.

C Change partners include Catella, Hines, IPUT Real Estate, PIMCO, Redevco, Schroders Capital, and C Change supporters include Longevity Partners, Patrizia, Sonae Sierra and Urban Partners.

The C Change Summit 2024 takes place 17 October at the World Trade Center, Barcelona, Spain.

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For further information, contact [email protected]

Notes to Editors:

C Change is a ULI-led programme to mobilise the European real estate industry to decarbonise. We’re a movement empowering everyone to work together for a sustainable future. We connect the brightest minds from across the value chain. We challenge barriers, share expertise, and champion innovation to move swiftly to accelerate solutions that will transform our industry and protect our planet. C Change means real change.  C Change was formed in late 2021 by a group of leading real estate players that was united in its aim to focus on collaboration to ensure companies large and small have access to practical solutions and education on decarbonisation.

The Urban Land Institute: The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has over 48,000 members worldwide representing all aspects of land use and development disciplines. In Europe ULI has almost 5,500 members across 15 National Council country networks.