Décarbone+ puts numbers on sustainable real estate, showing how energy efficiency and climate resilience can protect building values
Sustainable real estate is often discussed in terms of reputation and environmental impact. A new Quebec study argues it should now be seen as a financial issue as well. Décarbone+, a non-profit that promotes decarbonization, has released a white paper that quantifies how climate resilience and energy performance can raise or erode the value of buildings in the province.
Sustainable real estate moves from buzzword to balance sheet
Using financial modelling, the report finds that sustainability can move the value of a property within a range of about plus five to minus eleven per cent. A building that anticipates energy and climate risks can gain close to five per cent in value. One that becomes outdated on energy use or regulation can lose nearly eleven per cent. In multi residential properties, improving efficiency enough to save around four hundred dollars per unit per year can increase market value by roughly 6.3 per cent.
What makes a building “sustainable”
Philippe Hudon, president of Décarbone+ and engineering firm Akonovia, says sustainable real estate is about how a building performs over time, not just its design.
He describes it as an asset that builds climate change resilience and energy efficiency into decisions, keeps operating costs under control, anticipates new rules and protects income. “They are in control of all exploitation fees, they can anticipate regulation and they’ve got a kind of stability of financial revenue and everything about the operating cost,” he says.
Hudon argues current market practices often fail to reward those qualities. “Right now, we don’t capture the plus value with the green building, the sustainable real estate,” he says. “The building owner or the developers cannot invest in the climate change resiliency or the energy efficiency because they’re not capturing the plus value for the asset.”
Décarbone+ worked with HEC Montréal and major players in finance and real estate to build a risk matrix that links factors such as vacancy, insurance and exposure to climate hazards with possible changes in asset value.
Insurance and the risk of stranded assets
For Hudon, insurance is one of the clearest signs that unmanaged climate risk is becoming a business problem.
“The insurance is probably the biggest and the problem will arrive soon,” he says. “If your building cannot have access to insurance or the risk that covers your insurance policy, you will need to have more financial reserve for this part if you cannot have access for a good insurance policy.”
Hudon argues the cost of resilience upgrades, such as stormwater improvements, may represent about half of one per cent of an asset’s value. By contrast, a building that becomes uninsurable or non-compliant can see double digit losses. For institutional owners, that raises the prospect of stranded assets that are still standing but no longer attractive in the market.
Messages for health, safety and ESG leaders
Hudon says anyone focused on the environment, sustainability and ESG should be questioning any strategy that relies on historical patterns.
“We cannot base our decisions on the past,” he says. “The past is not the future with climate change and the reality of our energy in Canada. We need to have some matrix of decisions, some projections for the financial risk.”
He notes forecasts will always involve some guesswork. Even so, he argues that making informed assumptions about future climate and regulatory conditions is better than ignoring them. “We need to include this kind of analysis,” he says. “Make sure we can project this risk instead of making decisions based on the past.”
Early decisions matter for builders and contractors
Hudon also has a message for construction firms and large contractors. He says sustainability and resilience should be part of a project from the very start, not added late in the process.
“When you build a building, sometimes we focus on the phase of construction,” he says. “Make sure your assets that you’re building, which you will probably keep for a few years, will be on track with the regulation change.”
He recalls a recent case where a new building lost access to insurance during the development timeline. “Between the beginning of the conception and when they delivered the building, the building was not insurable,” he says. “So there was a big issue.”
His advice is to look several years ahead when planning and designing projects. “Make sure you integrate this kind of thinking at the early part of the process and make sure you understand what can happen in the next three to five years,” Hudon says. “Make sure your assets will be financial viability.”
For health and safety leaders, the message is that sustainable real estate is not just an environmental concern. It is becoming a core part of managing operational, financial and people related risks in buildings across Canada.
This article is part of our Monthly Spotlight series, which in April focuses on environment, sustainability & ESG.
