What is the cost of doing nothing?
A new approach brings climate-related transition risks into investment decisions
The real estate industry can now measure CO₂ emissions accurately and plan decarbonization pathways. Yet one key question often remains unanswered: What financial risks arise when action comes too late—or does not happen at all?
This idea is not new. The 2006 Stern Review, The Economics of Climate Change, shaped the global climate debate with a clear message: Over time, the cost of inaction exceeds investment in early climate action. Almost 20 years later, the same question applies to individual properties: What are the economic consequences when decarbonization starts too late?
For real estate investors, this means identifying and assessing an asset’s transition risks early. Buildings that fall behind regulatory requirements, market standards or decarbonization pathways can lose competitiveness and value.
The consequences:
Quantifying these risks reliably remains a challenge. This is where ULI Europe’s new PRESERVE tool comes in. It makes the financial impact of delayed transformation measures transparent and provides a sound basis for investment decisions.
Making transition risks tangible for investment decisions
ULI developed PRESERVE as part of its C Change programme. The tool translates climate-related transition risks into the language of investment decisions. PRESERVE integrates these risks into established discounted cash flow (DCF) models. It considers both decarbonization costs and the potential cost of inaction. These costs may include rising carbon prices, regulatory requirements, vacancy risks and declining investor demand.
The investment needed to decarbonize an asset is usually easy to quantify. Assessing the impact of delayed or missing action often proves more difficult. PRESERVE compares both perspectives and supports a more holistic view of opportunities and risks.
In our view, the tool acts as a bridge between decarbonization strategy and investment decisions. It translates climate-related risks into financial impacts. This can support more informed capital expenditure (CAPEX) allocation for acquisitions, refurbishments, hold-or-sell decisions and strategic portfolio management.
From ESG requirements to informed investment decisions
PRESERVE gains further relevance through the broad involvement of leading market players in its development. As part of the ULI C Change Programme, organizations including Hines, PIMCO, J.P. Morgan, Nuveen, Invesco and PATRIZIA contributed to the work on climate-related transition risks.
“The real challenge often lies not in calculating the cost of transformation, but in making the cost of inaction visible. PRESERVE translates climate-related transition risks into financial metrics, supporting more informed investment decisions. This brings sustainability closer to the economic reality of real estate investment.”
Can PRESERVE create a common market language?
PRESERVE has the potential to be more than another sustainability tool. Investors, lenders, valuers and advisers can assess transition risks using comparable financial assumptions. This can create a common language for climate-related investment decisions.
The tool does not replace technical expertise or a robust decarbonization strategy. Its strength lies in linking technical measures with their financial impact. It adds a new perspective to a familiar question: What does decarbonization cost? What does it cost to decarbonise too slowly—or not at all?
PRESERVE is still at an early stage of development. Yet it can already help make transition risks more transparent and support more informed investment decisions. At Drees & Sommer, we are exploring how to integrate PRESERVE into due diligence and portfolio analyses. Together with our technology partner OPTIML, we link transition risks, physical climate risks, decarbonization strategies and financial metrics. This creates a holistic basis for decision-making.
Would you like to understand how transition risks could affect your assets or portfolio?
Get in touch with us.