This chapter explores how actors in the real estate sector manage climate-related risks through two allied strategies: financial risk transfer and climate-related physical and transition risk reduction. It reviews innovative financial mechanisms that may complement insurance schemes, alongside regulatory tools such as performance standards, hazard zoning and modernised building codes. The chapter also considers financing and funding mechanisms that enable decarbonisation and resilience, while drawing attention to equity concerns for vulnerable households. Achieving long-term resilience requires linking financial mechanisms with structural adaptation to ensure mitigation and adaptation in the real estate sector.
Future‑Proofing Real Estate Investment
Place-Based Risks
Abstract
Traditional insurance remains a cornerstone of climate-related risk management in the real estate sector. However, the growing frequency and severity of hazard events are creating challenges by driving up premiums due to increased insurer losses on high-risk properties.
Private markets have expanded alternative risk transfer mechanisms to diversify investment risk.
Even when risk is transferred, exposure often persists throughout the asset’s life, underlining that financial redistribution does not address underlying vulnerability.
Climate-related risk reduction strategies therefore emerge as essential complements. Regulatory and planning levers, such as energy performance standards, mandatory disclosure, hazard-sensitive zoning and updated building codes, create measurable pathways for integrating climate resilience into property markets.
Financing and funding mechanisms, including green mortgages, bonds, concessional loans and public subsidies are expanding to mobilise capital at scale, while voluntary certification schemes differentiate frontrunners. These frameworks help translate climate-related risks into financial terms that lenders, insurers and investors can act upon.
Yet gaps remain: Implementation is uneven across countries; some regulations are misaligned with local conditions and affordability barriers prevent vulnerable households and informal settlements from accessing necessary upgrades.
Implication for action
Governments can support climate-related risk transfer mechanisms (e.g. insurance) through dedicated financing for resilience upgrades. Separate public schemes to support “build-back-better” can provide a cost-efficient approach to building future resilience. They can also build incentives for the private sector to proactively invest in resilient infrastructure, climate-proofing measures and innovative risk-reduction technologies.
Regulators can promote building performance standards that are predictable, enforceable and supported by financing to enable compliance across income groups.
Investors and lenders can embed energy and resilience metrics directly into valuation and credit practices, while insurers and capital markets expand coverage through instruments that incentivise adaptation rather than perpetuate vulnerability.
All strategies can integrate equity safeguards so low-income households and informal settlements are not left behind.
Knowledge gap and next steps
Evidence from emerging and developing economies remains scarce, especially regarding how financing and regulatory frameworks interact with rapid urbanisation and informality. The next phase of research could prioritise case studies from these contexts.
Future work could also include a stocktake of existing evidence on the valorisation of avoided climate-related risk, highlighting how measures for resilience and decarbonisation can help preserve the value of real estate assets.
Stakeholders across the real estate sector are facing growing exposure to climate-related risks that influence both asset values and investment decisions. Physical hazards such as extreme weather, sea-level rise and shifting precipitation patterns damage properties directly, while climate-related transition risks from evolving regulations and market preferences reshape investment decisions (IPCC, 2021[1]; NGFS, 2022[2]). Together, these pressures influence the long-term performance, insurance affordability and financing of real estate assets. Reducing exposure and vulnerability at the building and community level is now essential to support the stability of real estate markets.
The OECD Future-proof Real Estate Investment Survey (2025) confirms that climate-related risks in real estate are overwhelmingly long-term and structural, rather than short-lived shocks. Among 43 respondents, 37% reported that their organisation expects to retain significant exposure to climate-related risks for the entire life of the asset. A further 14% expected climate-related risks to last between 6 to 10 years, while only 2% saw these risks disappearing within a year. This result illustrates that for most stakeholders, climate-related risks are enduring features of property ownership and investment.
A dual strategy combining climate-related risk reduction and appropriate financial support mechanisms is essential for long-term resilience in real estate markets. Public and private resilience and adaptation funds can help redistribute the costs of climate-risk related investments across stakeholders while supporting system-wide risk reduction. Regulation, planning and investment frameworks that embed resilience into buildings and urban planning can help shift the real estate sector from reactive disaster recovery to proactive adaptation. The investment challenge in the real estate sector in the context of climate-related risks is twofold: decarbonising buildings to align with net-zero objectives and adapting the built environment to withstand intensifying physical climate-related risks.
This chapter explores how public and private stakeholders can protect real estate assets and investments from climate-related risks through complementary approaches for mitigation and adaptation to climate-related risks in the real estate ecosystem. These include managing and transferring residual financial risk, reducing exposure and vulnerability through regulation and planning, mobilising finance and funding and using market standards and certifications to support resilience and adaptation.
The IEA’s Faster Transition Scenario (FTS) estimates an added USD 14 trillion cumulative investment in buildings by 2050. The FTS is an accelerated pathway that assumes stronger policy action, faster deployment of clean technologies and higher efficiency standards than under the baseline “New Policies Scenario”. This massive investment translates into USD 27 billion in extra annual capital flows over the next decade, a relatively small addition to the USD 4.9 trillion already invested in buildings each year globally (IEA, 2019[3]). It is important to note that these IEA estimates focus specifically on capital investment in new construction, renovation and equipment. They do not capture the far larger volumes of capital circulating in real estate markets through acquisitions, refinancing or portfolio allocations. As such, they represent only part of the picture, namely the technical investment needs of the energy transition, and not the full scale of market flows that must be aligned with climate objectives. These incremental investments can nevertheless bring net benefits. In the FTS, cumulative household energy spending to 2050 falls by USD 5 trillion, with the average share of household income spent on energy declining from 5% today to around 2.5% by 2050 (IEA, 2019[3]).
Complementing these estimates, market analysis suggests the green buildings sector could represent a USD 24.7 trillion investment opportunity by 2030 across emerging-market cities with populations greater than 500 000. Much of this investment potential (USD 17.8 trillion) is concentrated in East Asia Pacific and South Asia, where more than half of the world’s urban population is projected to live by that time. Residential construction alone accounts for USD 15.7 trillion, or 60% of the market opportunity. Yet current investment levels remain far below this potential: in 2017, global investments in green buildings totalled just USD 423 billion out of the USD 5 trillion spent on building construction and renovation (IFC, 2021[4]).
Adaptation and resilience finance is even more constrained. Global flows to adaptation stood at around USD 60 billion in 2022, while UNEP estimates that USD 160 to 340 billion per year will be needed by 2030 to meet global adaptation needs across all sectors (UNEP, 2022[5]). However, existing international datasets do not provide a breakdown of how much of this finance is directed specifically to buildings. The absence of sectoral data on adaptation finance for buildings is an important knowledge gap, complicating efforts to assess whether capital flows are aligned with the scale of resilience needs.
Bridging this gap will require mobilising significantly more capital toward green building projects, supported by policies, financing mechanisms and market incentives that can unlock the sector’s full potential (IFC, 2021[4]). Capital markets, insurers and investors play a central role in determining whether financial flows align with climate objectives. Their capacity to manage risk, mobilise investment and innovate new instruments is critical for scaling up both mitigation and adaptation. The next section therefore examines how private markets are responding, beginning with innovations in risk transfer mechanisms that aim to protect asset values in the face of accelerating climate-related risks.
Risk transfer is a risk management or control technique in which one party assumes the financial consequences or liabilities of specific risks from another party, either formally or informally. A household, community, enterprise or state authority can therefore protect themselves from financial risks after a disaster occurs in exchange for ongoing financial benefits or social compensation to the other party (UNDRR, 2017[6]). Risk can also be shared informally through family or community support based on mutual aid, community savings groups or informal personal agreements. Formal risk transfer involves large risk-bearing institutions such as governments, insurers, multilateral banks and similar bodies using tools such as insurance, indemnification clauses in contracts, derivatives, outsourcing, reinsurance or catastrophe bonds. These mechanisms require a payment to transfer risk, typically funded through premiums or interest payment (UNDRR, 2017[6]). The purchasing of insurance is a classic example of risk transfer, whereby an insurance company will cover the risks of an individual or entity in exchange for periodic payments or premiums. The insurer will cover the individual or entity from incurring financial losses in the agreement of reciprocal benefits. For decades, this principle has formed the backbone of real estate risk management, enabling property owners to protect themselves against financial losses through insurance arrangements.
Traditional insurance plays a central role in transferring property risks, but its capacity to manage growing climate-related risks is becoming increasingly constrained. As discussed in Chapter 3 in underwriting risk, insurance coverage for some individual properties is becoming unaffordable based on their specific location and climate-related risk characteristics. This challenge is compounded by the short-term nature of insurance coverage for climate-related and other property risks, with annual renewals and potential re-pricing, which may have limited the uptake of risk assessment and pricing tools that consider long-term climate related impacts by policy holders (Surminski, S., J. Barnes and K. Vincent, 2022[7]; EIOPA, 2021[8]; OECD, 2023[9]).
Short-term thinking also extends to how real estate stakeholders plan for climate-related risks. Results from the OECD Future-proof Real Estate Investment Survey (2025) suggest that this shorter-term planning horizon extends beyond annual insurance contracts. The majority of respondents reported focusing on the short-term horizon (present to 2030), immediate physical and transition risk and the medium-term horizon (2031-2050), each representing 41% of responses. Only 13% accounted for long-term risks beyond 2050 and just 6% applied a full asset lifecycle perspective. Given that commercial real estate assets often remain in use for 80 to 100 years, and climate-related risks persist throughout their lifespan, a mismatch between management needs for long-term assets and short-term financial planning is clear (CCPIA, 2025[10]).
Some investors are now beginning to pair traditional insurance with alternative risk transfer approaches (such as catastrophe bonds) and climate-related risk insurance mechanisms (such as parametric insurance) to broaden risk coverage and speed up access to funds post-hazard events. These approaches reflect recognition that rising correlated losses in property markets are raising premiums for insurance beneficiaries and losses for insurance providers. They provide additional channels for absorbing and distributing risk to help stabilise balance sheets where hazard exposure is concentrated (UNDRR, 2025[11]; Kensuke Molnar-Tanaka and Hiroaki Sakamoto, 2025[12]).
Alternative risk transfer mechanisms
Alternative Risk Transfer (ART) provides additional ways to share and finance climate-related losses alongside conventional insurance. These are financial structures that allow risk to be transferred, shared or financed outside tradition and reinsurance contracts. It is gaining relevance for the real estate ecosystem, where climate-related physical risks can affect asset values, impair assets, disrupt rental and operating cash flows and raise repair and insurance costs, with spillover to lender and local public finance as highlighted in Chapter 3 (ECB and EIOPA, 2024[13]). Such mechanisms do not replace insurance but offer complementary means for distributing risks across a broader set of markets and actors, including capital-market investors. They can also assist in maintaining the stability of local property markets and broader financial systems, while helping shield stakeholders from catastrophic losses (Pollner, J. D., 2001[14]).
Risk transfer mechanisms can help diversify risk and improve the predictability of financial flows after severe climate-related hazard events, but its use remains selective and context-dependant. Some mechanisms allow climate-related catastrophe exposure to be financed through capital markets or pooled arrangements, particularly where losses are large, geographically concentrated or where traditional insurance pricing becomes more variable (UNDRR, 2025[11]; OECD, 2024[15]). However, its effectiveness depends on the clarity of the underlying risk transfer design.
The ART mechanisms most relevant to the real estate sector differ in purpose and suitability and selection depends on ownership profile, portfolio concentration and regulatory environment. While a variety of mechanisms exist in finance and insurance sectors, they are also relevant in post climate-hazard protection by reducing financial risk in property investment. Captives create in-house insurance, while catastrophe bonds and collateralised reinsurance transfer defined upper layers of catastrophe risk to capital markets (OECD, 2022[16]). Parametric insurance offers rapid, trigger-based payouts but may not match actual losses (OECD, 2024[17]). At smaller scales, informal mutual support can address minor or recurrent losses for the uninsured but are unable to absorb major shocks (UNDRR, 2025[11]).
Captives, for example, are insurance or reinsurance companies owned by firms whose risks they insure. They allow companies to retain, price and manage their own risks, either by issuing insurance to operating entities or by reinsuring a share of risk written by a fronting insurer. This structure gives the parent greater control over underwriting, claims and risk data, while still meeting regulatory and operational requirements. Companies use captives to stabilise premiums, access reinsurance markets, manage volatility in market capacity and, increasingly, cover risks that are difficult or impossible to insure externally. For a captive arrangement to be recognised as genuine insurance, the captive must assume insurance risk, demonstrate sufficient financial capacity and achieve meaningful diversification either through a wide internal portfolio or by reinsuring externally (OECD, 2020[18]).
To operate legally, a captive must be domiciled in a jurisdiction that has specific captive insurance legislation. In practice, a business establishes a captive as a wholly owned subsidiary, capitalises it, determines which risks it will underwrite, and pays premiums to it. Patterns in Vermont (US)’s captive market show that captives can be used to retain property risks where insurers reduce capacity, raise deductibles or introduce new exclusions following major climate-related events. These developments include companies retaining higher layers of catastrophe exposure, using captives to stabilise property insurance costs and filling gaps for certain perils, such as wind or wildfire, that have become unavailable or unaffordable (Vermont Captive Insurance, 2024[19]).
Catastrophe bonds
Catastrophe bonds (CAT bonds), can shift disaster related risks from insurers or governments to global investors through multi-year securities. First introduced in the aftermath of Hurricane Andrew in 1992, CAT bonds pay out automatically when predefined triggers are met, such as hurricane wind speed or an earthquake above a set magnitude (Polacek, A., 2018[20]; Lloyds, 2024[21]; ARTEMIS, 2025[22]). They serve as an important option when conventional insurance systems and public financing structures are stretched beyond their capacity. In such cases, CAT bonds help bridge funding gaps created by increasingly severe disaster events (UNDRR, 2025[11]).
While CAT bonds are discussed in the context of real estate resilience in this report, it is important to note that these instruments are fundamentally insurance and reinsurance tools, rather than financial products developed for the real estate sector itself. The CAT bond market was created by and for insurers to transfer extreme event losses to global investors (Federal Reserve Bank of Chicago, 2018[23]). In some cases, institutional real estate investors are beginning to explore these instruments in collaboration with the insurance sector. CAT bonds can strengthen portfolio diversification across international multi-asset portfolios. While their capacity to act as a reliable hedge is limited, they offer noticeable protection during post-disaster financial shocks (Drobetz, W., Schröder, H., & Tegtmeier, L., 2020[24]). For example, Swiss Re Capital Markets announced in 2024 that it had successfully structured and placed USD 250 million of insurance-linked securities to provide protection to certain real estate funds managed or controlled by affiliates of Blackstone Inc. This type of transaction illustrates the potential of CAT bonds to bridge insurance and real estate capital markets, offering new avenues for managing disaster-related losses (ARTEMIS, 2023[25]).
For governments, CAT bonds can provide pre-arranged financial protection and help manage large post-disaster fiscal shocks. This can help reduce delays in accessing capital for the reconstruction of public buildings and infrastructure and lessen budget volatility, which can reduce disruption to essential public services by ensuring that reconstruction can begin promptly. For property owners and investors this can help maintain assets values, ensure business continuity and protect income streams from prolonged disruption.
CAT bonds operate through a simple structural mechanism (Figure 4.1). Investors place money into a special-purpose vehicle, receiving regular coupon payments as long as no qualifying disaster occurs. If the trigger is met, the principal is transferred partially or fully to the sponsoring entity and investors lose that amount of capital, providing non-repayable funding for recovery and reconstruction (OECD, 2022[16]). This structure functions the same whether the issuer is a government, insurer or real estate owner, making CAT bonds a versatile tool for transferring disaster risk to capital markets. The main challenge relates to “basis risk,” which occurs when a disaster causes major damage but fails to meet the bond’s trigger, leaving issuers without payouts (Polacek, A., 2018[20]).
Source: (OECD, 2024[26])
The CAT bond market has experienced steady growth since its emergence in the 1990s, with corporations serving as the primary issuers during its first decade. After relatively modest issuance in the early years, annual volumes began to rise steadily from around 2012. In 2025, total insurance reached approximately USD 19.47 billion (ARTEMIS, n.d.[27]).
Parametric insurance
Parametric insurance provides payouts based on objective and pre-defined disaster parameters rather than post-event damage evaluation, offering speed, transparency and greater certainty. This helps accelerate payout and avoid disputes. Instead of proving damage after an event, policyholders receive compensation automatically when a trigger threshold such as rainfall depth, wind speed or earthquake magnitude is exceeded. Such coverage is often used to support immediate response and early recovery, rather than long-term reconstruction for governments and for private real estate actors to support costs not adequately covered by traditional insurance.
However, parametric insurance can leave gaps when damages occur outside the set thresholds (OECD, 2022[16]). Supervisory guidance emphasises that the effectiveness of parametric models depends on transparent risk data, clear trigger definitions and integration with broader risk management strategies (Garcia Ocampo, D., & Lopez Moreira, C., 2024[28]). This reinforces the need to align trigger design and model selection with actual exposure patterns to ensure the cover functions as intended. Governments in some countries use parametric insurance alongside reserves, contingent credit and catastrophe bonds to manage losses of different frequency and scale.
Public-private insurance programmes
When private insurance markets struggle to offer affordable premiums with rising climate-related risks, governments can step in with risk-sharing mechanisms that pool exposure across broader populations and keep coverage available. Whether for policy objectives or in order to protect households and businesses in high-risk zones from unaffordable insurance premiums and excessive losses, these schemes take many forms and can help to stabilise property markets and ensure that affordable insurance coverage is available to protect against climate risks.
National governments can ensure wider coverage by spreading risk at a territorial level. For example, the French natural catastrophe insurance system, known as CatNat, was established in 1982 to address a lack of insurance coverage for damages caused by natural events of exceptional intensity. These events, such as floods, earthquakes and landslides, were not typically covered by standard property insurance policies due to a lack of reliable data, accumulation risk (one event hitting many insured) and anti-selection, leading to the creation of the scheme (Government of France, 2025[29]; Bidan, 2001[30]). The CatNat regime functions as a mandatory extension to property damage insurance contracts and is underpinned by principles of mutual risk sharing. It relies on state intervention to recognise the occurrence of a natural disaster, after which insurance cover is triggered through a ministerial decree. Claims are managed by private insurers who are reinsured by the Caisse Centrale de Réassurance (CCR), a publicly owned company (CCR, 2025[31]). The system aims to ensure wide coverage at a reasonable cost and applies to individuals, businesses and local authorities across the entire French territory (France Gov, 2023[32]; France Georisques, 2025[33]).
The increasing frequency and severity of extreme weather events has underlined the continued relevance of the CatNat system (Keucheyan, 2023[34]). Between 1982 and 2022, the scheme provided consistent support to households and businesses, with over EUR 6 billion in compensation paid out during this period. Forecasts by the CCR suggest that claims could rise by up to 60% by 2050, highlighting the importance of ongoing system adaptation (CCR, 2025[31]). Legislative reforms passed in 2021 and subsequent years have sought to strengthen the system’s transparency, efficiency and support for affected populations, including through faster recognition procedures, emergency rehousing assistance and clearer governance arrangements. Furthermore, as of January 2025, the government has taken steps to reinforce the scheme’s financial balance by an increase applied to premiums from 12 to 20% in property damage insurance contracts (France Gov, 2023[32]). These efforts aim to maintain insurer participation and uphold the principle of risk mutualisation to ensure continued protection for all policyholders. An Observatory of Insurability was established in 2024, under the review of the CCR, to study the availability of insurance in high-risk areas in France. A first report is expected by the end of 2025 (CCR, 2025[35]).
Risk transfer alone cannot stabilise real estate markets under stress from post climate-related hazards, as post-disaster payouts do not address the underlying exposures or vulnerabilities associated with escalating losses. According to the OECD Future-proof Real Estate Investment Survey (2025), 31% of respondents reported that climate-related risks will persist for the full life of the asset even after accounting for risk transfer mechanisms, while only 21% indicated that risk transfer rendered them “not applicable”. This underlines that financial risk transfer cannot eliminate long-term exposure embedded in real estate. Insurance, reinsurance and capital market instruments provide
Resilience is achieved when risk transfer mechanisms are combined with policies that directly reduce climate-related risks in the built environment. Regulation and urban planning can reduce climate-related risks in ways that deliver long term cost savings for both the public and private sectors. By guiding where development takes place and setting standards for the design, construction and maintenance of buildings and infrastructure, these frameworks help limit exposure and reduce the scale of damage when extreme hazard events occur (UNDRR, 2025[11]).
Performance standards, such as Minimum Energy Performance Standards (MEPS) and Energy Performance Certificate (EPC) ratings, turn vague climate concerns into measurable property attributes that lenders and insurers can price. Zoning laws and hazard mapping prevent new construction in areas that will inevitably face repeated flooding or wildfire. Meanwhile, financial incentives and renovation support programmes encourage households and investors to make upgrades, ensuring that rules offer practical pathways to greater resilience. By linking financing with standards, certifications and planning, governments can limit moral hazard, keep insurance affordable and foster property markets that are both investable and sustainable.
Building energy performance standards
The most direct pathway through which decarbonisation policies mitigate financial risk is by transforming ambiguous climate concerns into concrete, measurable compliance requirements. Energy performance certificates and standards provide standardised, comparable metrics that replace subjective sustainability assessments enabling systematic risk assessment across real estate portfolios and integration into financial decision making. 85 countries have adopted energy performance codes for residential buildings and around 80% of these are mandatory. Many now also include provisions for renewable energy integration, life-cycle assessment and energy-efficient design. However, more than half of new global construction still falls outside the scope of such codes, limiting progress towards climate and energy efficiency goals (UNEP and Global ABC, 2025[36]).
Energy performance certificates (EPC) are particularly important for identifying stranded asset risks. Properties with poor energy performance ratings represent measurable stranded asset risk because they face predictable regulatory obsolescence timelines, restricted market access and impaired financing options. The transparency provided by standardised energy performance metrics allows portfolio managers to quantify concentrations of climate-vulnerable assets and model potential losses under various regulatory scenarios.
Stricter building performance rules are transforming how energy efficiency is valued and enforced. The European Union's Energy Performance of Buildings Directive (EPBD) creates a predictable timeline for addressing climate-vulnerable properties through its Minimum Energy Performance Standards (MEPS). It requires member states to renovate 16% of their worst-performing non-residential buildings by 2030, expanding to 26% by 2033. The MEPS framework incorporates trigger points such as property sales or rentals, ensuring that energy performance compliance is embedded within routine transaction cycles. This mechanism directly addresses information asymmetries in real estate markets by requiring disclosure of energy performance the moment financial decisions are made. MEPS standardisation enables portfolio managers to model potential losses under various regulatory scenarios and quantify concentrations of climate-vulnerable assets across their holdings. Properties failing to meet MEPS requirements face restricted market access, reduced liquidity and impaired financing options, creating immediate financial consequences for underperformance that can be quantified through EPC metrics (OECD, 2024[37]). Examples of countries are already implementing MEPS are shown in Table 4.1.
Note: The example countries were selected from those that reported having MEPS in place.
Source: (OECD, 2024[38]),OECD Global Survey on Buildings and Climate (2024)
Building performance standards can create direct financial accountability for emissions. In the US, New York City’s Local Law 97 sets binding greenhouse gas emissions limits for buildings over 25 000 square feet, imposing fines of USD 268 per ton of CO2e exceeding established thresholds. Since 2024, buildings must comply with initial emissions limits that tighten progressively through to 2030 and 2035, following predictable compliance timelines (NYC Gov, 2025[39]).
Mandatory building energy performance standards trigger changes in how financial institutions assess and price risk in real estate, affecting the property finance ecosystem. The Netherlands gives the clearest example of this market transformation, where regulatory requirements drove comprehensive reform of banking risk assessment practices. When the Netherlands implemented its EPC Class C requirement for office buildings in January 2023, the regulation created immediate financial consequences that extended far beyond operational restrictions. Properties failing to meet the energy efficiency standard not only faced operational prohibition, but office owners were no longer able to access finance for it (RICS, 2024[40]). This binary relationship between environmental performance and capital access forced the banking sector to fundamentally reconsider its risk evaluation methods.
Regulatory clarity enables financial markets to integrate climate considerations into their core business functions. For example, in the Netherlands, major banks recognised that traditional property valuation methods could not adequately assess regulatory vulnerability. To address this, they collaborated with the Dutch Banking Association to develop the DuPa 2.0 (Duurzaamheidsparagraaf) sustainability paragraph which encompasses 80 sustainability data points including energy performance metrics, climate-related risks and comprehensive ESG factors. By March 2024, this framework became required for all commercial real estate valuations by major Dutch banks, creating industry-wide standardisation in climate-related risk assessment (RICS, 2024[40]). Rather than treating sustainability as an auxiliary concern, banks now embed environmental performance directly into their fundamental risk assessment and pricing mechanisms.
The OECD Future-proof Real Estate Investment Survey (2025) reinforces the importance of regulatory measures on building energy performance. Among 43 respondents, 67% identified minimum energy or carbon performance standards as the most effective government measure for accelerating sustainable real estate investment. This ranked well above other instruments, with 56% citing financial incentives, 28% national renovation mandates, 23% green taxonomies and 21% disclosure requirements. These results show that market participants not only accept regulation but actively view binding, measurable standards as the clearest investment signal. The data demonstrate that regulatory frameworks such as MEPS and EPCs are viewed as the backbone of sustainable real estate policy, provided they are paired with complementary support measures that safeguard feasibility (Figure 4.2).
Note: Question from the survey: “Key policies or instruments to accelerate sustainable real estate investments”. The survey respondents could select three applicable options
Source: OECD Future-proof real estate investment survey
Spatial risk management
A building’s resilience depends on decisions made at the community and city scale, particularly in relation to land use and infrastructure. Government decisions on land use and infrastructure strongly affect whether future development is safe, sustainable and resilient to climate-related risks. In many places, land markets do not fully account for climate and hazard risks, which can lead to new development in unsafe areas, particularly where planning systems are weak or informal. Across Europe and Central Asia, urban growth between 1985 and 2020 has increasingly expanded into flood-prone areas, driven by land scarcity, economic incentives and weak land-use enforcement. Urban management in this context requires climate-informed zoning grounded in reliable spatial data (WB, 2025[41]). Utilities, roads and public spaces benefit most from co-ordinated, neighbourhood-level resilience planning, which can safeguard many people and properties at once. Although measures at the individual building level are still useful, some hazards are better managed across an entire neighbourhood. Because exposure to physical climate-related risk varies from one area to another, effective solutions often require changes to land use or shared infrastructure, steps that cannot be carried out by single property owners alone (ULI, 2022[42]).
Addressing climate-related risks after urban development has taken place is more costly and complex. Once housing and infrastructure become established in exposed areas, moving households can be socially and politically difficult (WB, 2020[43]). In many cases, authorities then turn to large protective projects which can be expensive and hard to maintain, particularly for lower-income economies. For example, Indonesia is investing in extensive coastal barriers to manage rising sea levels. The Giant Sea Wall (Jakarta Bay) will pan 500km and is estimated to cost USD 80 billion and take 8-10 years to complete (Cabinet Secretariat of the Republic of Indonesia, 2025[44]). In Venice, the innovative MOSE (Modulo Sperimentale Elettromeccanico) barriers lift from the seabed to stop water from the Adratic Sea flooding the city. They have been in operation since 2020 and have been used over 100 times as of March 2025 (Ministero delle Infrastrutture e dei Trasporti, 2025[45]). This infrastructure is essential to protecting established infrastructure, people and property but requires continued investment and maintenance to be effective.
Catastrophic climate-related hazard events can drive comprehensive spatial risk management. In Greece, this is reflected in recent reforms linking land-use planning, construction standards and risk prevention. Extreme wildfires in Greece have caused major losses over the years. The 124 fires that burned in 2007 resulted in an estimated EUR 3 billion in damages and the 2018 Mati fire killed 100 people, destroyed approximately 3 000 homes and damaged key infrastructure (EC, 2007[46]; OECD, 2024[47]). The Fire Service Order 20/2024 applies to plots within approved plans, unplanned settlements and sites with buildings within 100 metres of these areas. It requires vegetation clearance, removal of combustibles and an annual online declaration by owners. Municipalities and the Hellenic Fire Service conduct inspections and may impose fines of EUR 0.10 to EUR 0.50 per m² by risk category, with procedures for urgent abatement where danger is high (Hellenic Republic Ministry of Climate Crisis and Civil Protection, 2024[48]). These measures operate within the Urban Planning Reform Programme “Konstantinos Doxiadis”, under Law 4759/2020, which introduced Local and Special Urban Plans (ΤΠΣ / ΕΠΣ) incorporating hazard mapping, adaptation and emergency-management measures into zoning (Ministry of Environment and Energy, Greece, 2024[49]). These regulations aim to improve the resilience of real estate assets and reduce investment risks, while also signalling a shift towards proactive spatial planning and stronger climate preparedness across Greece’s built environment.
For new developments, zoning is vital to reduce exposure. Strategic zoning shows how spatial controls can provide a first line of defense against climate-related risks. In Canada, Newfoundland and Labrador’s Policy for Flood Plain Management requires municipal zoning which restricts development in high-risk flood areas and imposes mandatory floodproofing measures, such as minimum floor elevations where limited development is permitted. The policy prohibits post-flooding reconstruction unless resilience upgrades are implemented (Government of Newfoundland and Labrador, 2014[50]). This type of regulation can help break cycles of loss and reconstruction in high-risk areas.
Zoning regulations can reduce climate-related exposure by guiding where and how development occurs. Australia’s Black Summer bushfires have led Western Australia’s State Planning Policy 3.7 to now require councils to identify bushfire-prone areas. Post climate-hazard damage assessments and policy reviews are necessary steps in climate-related adaptation, helping to mitigate future losses. Land-use controls that limit expansion into high-risk zones, prioritise infill development and mandate fire-resilient design for approved construction are now explicit in Western Australia’s framework. The combinations of detailed hazard mapping with bushfire risk assessments to reduce insurability concerns can help guide decisions for developers seeking long-term housing investments (WAPC, 2024[51]; Government of Western Australia, 2025[52]).
Building codes are policy instruments that can serve to mitigate both transition and physical climate-related risks, support occupant safety and ensure the built environment adapts to evolving regulatory landscapes and intensifying hazards. Building codes set minimum requirements for how buildings are designed and constructed which can be either performance-based or prescriptive. These requirements often address material selection and use, energy consumption and measures to reduce exposure to climate-related hazards (UNEP and Global ABC, 2025[36]). Well-developed and properly enforced building codes can reduce vulnerability to extreme weather and natural hazards while helping safeguard the health and well-being of building occupants (WHO, 2018[53]; UNDRR, 2025[11]).
Building codes can align construction with local climate realities. Kenya’s 2025 building code reforms demonstrate the importance of local, place-based policies. Historically, place-blind or non-contextual building codes derived from British colonial standards included provisions such as snow load requirements despite Kenya’s tropical climate. This geographic disconnect rendered millions of homes non-compliant with building codes or not adapted to local conditions, undermining confidence in the regulatory system (ARI, 2013[54]; Cities Alliance, 2002[55]). Kenya’s ongoing regulatory reform, led by the National Construction Authority and supported by the Institution of Engineers of Kenya aims to align building codes with constitutional requirements, adopt global best practices including energy performance standards and enforce mandatory inspections under a revised Building Code effective as of March 2025 (Kenya Law, 2024[56]). These reforms specifically target rebuilding trust through broad stakeholder engagement (IEK, 2025[57]). This transformation from regulatory incoherence to local relevance illustrates how spatial controls are most effective when grounded in local climate conditions.
Regulations can link energy performance directly to development value, aligning environmental objectives with market incentives. Vancouver Canadas’ Zero Emissions Building Plan, implemented through the Vancouver building by-law, mandates zero-emission heating systems, advanced insulation and performance standards, such as Passive House and Net Zero certification for all new buildings by 2030 (City of Vancouver, 2025[58]; City of Vancouver, 2025[59]). To support adoption, the city offers regulatory incentives, including additional floor space for new developments that meet rigorous energy criteria (City of Vancouver, 2025[60]).
By revising land use and urban plans with reliable data, authorities can guide growth towards safer locations. Hazard maps and infrastructure plans can support decisions about where housing, transport and services should be placed, which can guide private sector investment and influence land use, land values and population densities. Strong construction standards also contribute to resilience, as buildings that follow appropriate norms are generally more durable against climate-related hazards (WB, 2020[43]). Satellite monitoring, Geographic Information System (GIS) mapping and hazard models enable planners to identify vulnerable zones, adapt regulations and guide investment (as outlined in Chapter 2). Embedding such tools in planning systems can help avoid locking cities into costly exposure while balancing development with resilience.
Building and land-use decisions in some jurisdictions consider projected climate conditions rather than relying solely on historic averages. Under sections 71-74 of the New Zealand Building Act 2004, local municipal councils may decline building consent on land affected by hazards such as flooding, coastal erosion or subsidence unless the applicant can show how the risk will be reduced or managed across the expected life of the structure. This makes climate risk assessment a mandatory precondition for development approval (New Zealand Government, 2025[61]). The New Zealand Ministry for the Environment publishes Coastal Hazards and Climate Change Guidance which instructs authorities to use 50-100-year sea-level rise scenarios when assessing development requests including allowances for high-emissions futures (NZ Ministry for the Environment, 2024[62]). By embedding forward-looking consent frameworks in regulatory planning, local authorities can guide proactive adaptation (IPCC, 2022[63]).
Upgrading buildings both for decarbonisation and resilience requires a mix of financing and funding, because regulations and markets alone cannot deliver the scale of investment needed. Financing refers to repayable capital such as loans, bonds and mortgages, while funding refers to non-repayable support such as grant, subsidies and tax incentives (OECD, 2023[64]). Both are essential: financing mobilises private capital at scale, while funding ensures participation from low-income households or under-served communities.
Financing decarbonisation
Valuation practices are being adapted so that energy and resilience upgrades are recognised as part of asset value. In the Netherlands, the mandatory EPC Class C requirement for all offices from 2023 created the threat of stranded assets. This regulatory pressure triggered the development of DuPa 2.0, a framework that integrates over 80 sustainability metrics into commercial real estate valuation. By embedding climate performance directly into valuations, DuPa 2.0 allows banks to lend with confidence and rewards owners who invest in upgrades (RICS, 2024[40]).
Public development banks can mobilise private investment in energy efficiency through loans. Germany’s KfW programmes’ core product is the promotion of the Efficiency House standard, which grades buildings on a scale from level 40 to 85, with lower values reflecting lower energy demand. The more ambitious the level achieved, the greater the subsidy provided. Eligible beneficiaries include households that either renovate their residential property in a climate-friendly way or buy a newly renovated Efficiency House. KfW offers loans of up to EUR 120 000 per residential unit for achieving Efficiency House level 85 or better or for listed buildings. The maximum loan amount increases to EUR 150 000 if the property also qualifies for a renewable energy or sustainability class. These loans are complemented by repayment subsidies which reduce the outstanding principal and shorten the loan term. The higher the energy performance achieved, the larger the repayment grant, effectively lowering borrowing costs and improving affordability. A distinctive feature is that all projects must be supported by certified energy efficiency experts, who provide planning and construction supervision. KfW also subsidises these services through an added loan amount and repayment grant, ensuring quality and compliance. Governments’ financial support and incentives make regulatory compliance economically accessible while reducing upfront investment barriers. These support systems prove essential for converting regulatory requirements from financial burdens into viable investment opportunities, enabling the market transformation necessary for systematic risk reduction (KfW, n.d.[65]).
Green mortgages are a fast-growing tool for financing the decarbonisation of buildings by offering borrowers preferential terms when properties meet defined environmental standards (GFI, n.d.[66]). Demand is rising globally as stricter efficiency regulations, green certifications and shifting consumer preferences drive uptake, with the market valued at USD 181.2 billion in 2024 and projected to reach USD 536.6 billion by 2033 (GMR, 2025[67]). In the EU, over 70% of credit institutions provide lower interest rates and/or reduced fees for green loans to households compared to standard loans. SMEs and non-financial corporations (NFCs) benefit less frequently, with only 42% receiving preferential rates (EBA, 2023[68]). In the UK, green mortgage products have increased from 4 in 2019 to 61 in 2024, with ongoing investment and further product development expected in the future (GFI, n.d.[66]; GMR, 2025[67]). Credit institutions often combine interest rate discounts with cashback or reduced-cost ancillary services, with favourable pricing seen as the most effective incentive, making green mortgages a cornerstone of financing the low-carbon housing transition (EBA, 2023[68]).
Bond markets have become a cornerstone of building finance, attracting billions in capital for low-carbon construction and retrofits. Green bonds, for example, are the broadest category of bonds designed to fund projects with positive environmental impacts, such as renewable energy installations, energy efficiency upgrades to buildings and pollution control initiatives. Globally, since 2014, buildings have accounted for a quarter of the green bonds issued, amounting to USD 696.25 billion cumulatively (CBI, 2025[69]). Swedish property company Vasakronan, which issued the world’s first green corporate bond in 2013, is a pioneering example of profitable green bonds in the real estate sector. The bond financed a portfolio of new construction and renovation projects that incorporated environmental measures, including implementing charging units for electric cars and recycling construction waste (Ferlin and Fryxell, 2020[70]). Additionally, the introduction of green bonds caught the attention of more investors and widened the company’s investor base. By 2024, all Vasakronan’s issued bonds were green (Vasakronan, 2025[71]).
Green bond principles and standards ensure proceeds supports measurable outcomes (EC, 2023[72]). The International Capital Market Association (ICMA) Green Bond Principles (GBP) promote transparency through clear use of proceeds, project evaluation and selection processes, proceeds management and reporting (IMF, 2019[73]). The European Green Bond Standard (EU GBS) aligns with EU Taxonomy and adds eligibility criteria, enhanced disclosures European Securities and Markets Authority (ESMA) oversight strengthening credibility and comparability for investors for investors (EC, n.d.[74]).
Sustainability bonds finance a combination of environmental and social projects and use the proceeds to fund initiatives such as green homes. Social projects can have environmental co-benefits, and green projects can have social co-benefits (ICMA, 2021[75]). Kāinga Ora, a provider of social housing and support in New Zealand, has issued Wellbeing Bonds under its Sustainable Finance Framework to fund a portfolio of sustainable activities. Between its inception in 2018 and 2023, Wellbeing Bonds have directly contributed to the delivery of nearly 10 000 new public and supported homes. During the 2022-2023 financial year, 95% of bond proceeds were allocated to public housing, primarily supporting the development of new green homes as well as retrofitting existing public housing stock (Kāinga Ora, 2023[76]).
Funding decarbonisation
National programmes across countries illustrate how public funding can complement private finance. Countries such as France and Germany combine strict standards with large-scale renovation subsidies, low-interest loans and advisory services, ensuring that upgrades are both feasible for owners and fair for tenants.
Comprehensive subsidy schemes can make energy efficiency upgrades more accessible and attractive for households bringing support to an ordered transition. France’s MaPrimeRénov' programme exemplifies how comprehensive financial support can transform regulatory compliance from a burden into an accessible pathway for risk reduction. This scheme provides financial aid to homeowners for primary residences, divided into three pathways: step-by-step upgrades like insulation or low-carbon heating; comprehensive renovations requiring an advisor and a minimum two-class energy improvement; and collective works for shared buildings. Other support includes Certificats d’Économies d’Énergie (CEE) (Energy Savings Certificates, supplier-funded grants), Coup de Pouce (a "helping hand" bonus for replacing polluting heaters) and local subsidies via regional schemes. Tax incentives like Denormandie (a tax break for renovating rental properties) and temporary property tax relief further reduce costs. Tools like Mes Aides Réno ("My Renovation Aid") help households assess eligibility and simulate renovation costs, ensuring broad access to energy-efficient home improvements. Additionally, financing options encompass the interest-free éco-PTZ (eco-loan at zero interest), the deferred-repayment Prêt Avance Mutation (advance renovation loan) and reduced VAT rates on eligible works (France Gov, 2025[77]).
Tax-based funding can stimulate large-scale building decarbonisation by lowering the financial barriers households face to avoid climate-related transition risks. Since 2020 in Germany, homeowners who carry out energy-efficiency improvements on their owner-occupied residences (such as replacing windows and external doors, insulating roofs and walls or modernising heating systems) can deduct 20% of eligible costs (up to EUR 40 000 per property) from their income tax liability (IEA, 2021[78]). Crucially, the relief is spread over three years (7% in the first and second years and 6% in the third), which manages fiscal impacts while still offering meaningful household savings (Bundesregierung, 2020[79]). By tying generous yet capped tax relief to specific renovation measures, Germany is working to incentivise private investment in decarbonisation while ensuring budgetary predictability and helping households avoid climate-related transition risks linked to rising energy costs and stricter efficiency standards.
Financing resilience
Resilience bonds are designed to fund investments that enhance climate resilience. Resilience Bonds are innovative financial instruments based on the principle that proactive investment in disaster resilience delivers greater cost efficiency than post-disaster reconstruction, enabling governments to fund critical climate-related risk-reducing infrastructure projects by monetising avoided losses. For local authorities, these bonds provide three significant benefits: financing mechanisms for resilience initiatives, risk-sharing partnerships with multiple stakeholders and the ability to transfer catastrophe risk to capital markets (Vaijhala, 2018[80]).
Resilience bonds are a subset of green bonds and are designed to finance projects that help communities and infrastructure withstand climate-related shocks, such as flood defences, drought-resistant agriculture or climate-proofed buildings. While catastrophe bonds function like life insurance policies that only pay out after major disasters, resilience bonds are more akin to progressive health insurance plans that reward preventive action to lower long-term risks and reduce overall costs (Vaijhala, 2018[80]). These preventive actions strengthen infrastructure and systems, enabling them to withstand, adapt to or transform in response to climate-related risks while avoiding maladaptation and delivering broader developmental benefits. The Tokyo Metropolitan Government (TMG) has launched the JPY 53 billion (EUR 300 million) TOKYO Resilience Bonds to fund the TOKYO Resilience Project, a long-term urban adaptation strategy aimed at safeguarding the city against increasingly severe storm and flood risks. Building on earlier Tokyo Sustainability Bonds, the bond channels its proceeds exclusively into new climate-resilient infrastructure projects, including flood-control works, enhanced stormwater systems and the reinforcement of critical urban and real estate assets. The bonds are aligned with the ICMA Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines. Notably, they represent the world’s first resilience bonds certified under the expanded Climate Bonds Standard incorporating the Climate Bonds Resilience Taxonomy (Tokyo Metropolitan Government, 2025[81]; Tokyo Metropolitan Government, 2025[82]).
Funding resilience
Building resilience requires directing funds toward measures that reduce vulnerability to future climate-related risks and enhance adaptive capacity. This includes physical upgrades such as flood defences, green urban drainage systems or coastal barriers; nature-based solutions, including afforestation; and technological systems, like early-warning platforms, climate-resilient digital grids or smart water management. Equally important are social and institutional investments, such as strengthening local risk governance, training communities in emergency preparedness and integrating climate adaptation into regional development planning. The EU’s Cohesion Policy serves as the primary investment instrument to reduce regional disparities and support the green and digital transitions, allocating around EUR 392 billion for 2021-2027, nearly one third of the EU budget (EC, n.d.[83]). At least 30% of this budget is earmarked for climate action, covering both mitigation and adaptation (UNFCCC, 2022[84]; EC, 2025[85]). In France, the Partnership Agreement 2021-2027 sets out a total of EUR 18.4 billion in cohesion funds, of which about EUR 3.4 billion is dedicated to the priority “A Greener Europe” (Specific Objective 2 - OS2), generating EUR 5.7 billion in total investment through co-financing (EC, 2025[85]). Within this, some EUR 350 million across 15 projects has so far been channelled specifically into climate-risk prevention, underscoring how adaptation and resilience are treated as core components of EU and French territorial policy, alongside emissions reduction (Kohesio, 2025[86]). These allocations are primarily disbursed as budgetary funds and grants, rather than repayable financial instruments or market-based financing.
Insurance can move from reactive cost-spreading to proactive risk reduction by integrating resilience into household cover. The United Kingdom’s Flood Re programme was established as a joint initiative between the government and insurers. Flood Re subsidises reinsurance for high-risk homes while its Build Back Better (BBB) scheme provides up to GBP 10 000 for property-level flood resilience measures during reinstatement (Flood Re, 2025[87]). These include adaptations such as flood doors, drainage improvements and raised electrics which not only reduce the likelihood of water ingress but also accelerate recovery after an event. Although resilience repairs cost around 34% more initially, they cut future repair bills by up to 73% and can pay for themselves after just one subsequent flood (Rotimi et al., 2011[88]). By combining financial protection with incentives for resilience, Flood Re demonstrates how insurance innovation can lower long-term risks, reduce household displacement and support climate adaptation at scale (FloodRe, n.d.[89]).
International climate funds also provide direct grants for resilience in vulnerable countries. The Green Climate Fund's Vanuatu community-based climate resilience project (VCCRP) is a prime example of this. With a budget of USD 32.7 million and a timeline from 2022 to 2028, the project aims to increase the resilience of highly vulnerable rural and coastal communities to threats such as extreme weather events, sea-level rise and coastal erosion. The funding is being used for tangible adaptation measures, including the protection and restoration of 11 600 hectares of agricultural and fishery sites, training smallholder farmers and fishers in climate-resilient techniques, establishing local disaster risk reduction committees and providing access to early warning systems at the local level (The Green Climate Funds, n.d.[90]).
Voluntary green building certification systems complement regulation by signalling above-minimum performance, helping investors and tenants identify buildings that exceed legal requirements. Certifications can be used throughout a building lifecycle, from initial site selection and design through construction, operation and eventual demolition. These multi-attribute evaluation systems examine efficiency, water conservation, material selection, indoor environmental quality and ecological impact through rigorous third-party verification processes. While MEPS and EPCs establish minimum standards, certifications such as LEED (Leadership in Energy & Environmental Design), BREEAM (Building Research Establishment Environmental Assessment Method), EDGE (Excellence in Design for Greater Efficiencies), DGNB (Deutsche Gesellschaft für Nachhaltiges Bauen) and HQE (Haute Qualité Environnementale) highlight frontrunners. They carry distinct rating methodologies tailored for new construction projects, focusing on design and construction decisions as well as renovation and retrofit of existing buildings, emphasising operational improvements and maintenance practices. These systems create market differentiation, attract green finance and respond to growing tenant demand for efficient, healthy and future-proof buildings.
The certified buildings can achieve cost parity with conventional construction through integrated design and early planning. Sustainability certification often adds up to 4% to costs, with higher certifications (such a LEED Platinum or BREEAM Excellent) adding between 2% to 12.5%. However, these costs are offset by operational savings from energy-efficient systems. The construction industry frequently overestimates cost premiums due to high-profile showcase projects featuring non-essential green technologies. Costs are decreasing as supply chains mature and expertise grows as evidenced by LEED project data showing reducing premiums over time. The integrated design process proves crucial, combining passive strategies, efficient building skins and collaborative planning to avoid costly bolt-on solutions. While aspirational projects targeting zero carbon may incur up to 12.5% higher costs, most certified buildings demonstrate that sustainability can be achieved within conventional budgets through proper implementation (WGBC, 2013[91]).
Further, environmental certification can lead to enhanced property performance in the market (UNEP FI, 2023[92]). A global review of research from 2003 to 2021 found that green-certified office buildings can command rent premiums of around 85% in the United States and 81% in Europe, indicating a growing market recognition of sustainability credentials. The scale of this premium can vary between markets and certification levels (Jayakody and Vaz, 2023[93]). Table 4.2. compiles established green certifications and standards globally, including their emphasis on climate mitigation and/or adaptation and resilience indicators as well as primary use case and geographic focus.
Source: (USGBC, n.d.[94]), (BRE Global, n.d.[95]), (IWBI, n.d.[96]), (ILFI, n.d.[97]), (IFC, n.d.[98]), (GBCA, n.d.[99]), (DGNB, n.d.[100]), (ISI, n.d.[101]), (USGBC & Perkins&Will, n.d.[102]), (ISO, n.d.[103]), (PHI, n.d.[104]), (JSBC & MLIT, n.d.[105]), (GBI, n.d.[106]), (NABERS Australia, n.d.[107]), (Alliance HQE-GBC, n.d.[108]) (LCBI, 2025[109]) (Zero Carbon Building Standards, n.d.[110]) (Government of Canada, n.d.[111]) (BOMA BEST, n.d.[112])
Building certification schemes play an increasingly important role in driving the decarbonisation and resilience of the global real estate sector, yet their diversity and uneven data transparency pose challenges for comparability, investment decisions and policy alignment. The growing number of green building certifications reflect progress towards sustainable construction, but differing standards and methodologies across jurisdictions can hinder consistency of risk and performance assessment for investors, particularly across borders (UNEP, 2024[113]; WGBC, 2024[114]). The Global Buildings Climate Tracker (GBCT), a composite indicator developed by the GlobalABC to track decarbonisation in the global buildings and construction sector, provides an emerging framework to evaluate market penetration and performance outcomes. However, they argue that more consistent and transparent reporting from certification bodies is needed to strengthen global monitoring (UNEP and Global ABC, 2025[36]; UNEP, 2024[113]). Embedding local climate and environmental risk criteria within internationally recognised frameworks can help enhance investor confidence and support building life-cycle approaches, while certification systems must also adapt to regional conditions, particularly in developing countries where data and institutional capacity may be limited (UNEP and Global ABC, 2025[36]).
Climate-related risks disproportionately affect how low-income households, making place-based resilience and mitigation strategies essential for a just transition in the real estate sector. While exposure is local, the financial risks are global thus demanding policies that support low-income households as well as developing economies in adapting and decarbonising the built environment. As highlighted in previous chapters, climate-related disasters can cause long-term income losses that disproportionately affect poorer households, as damage to homes, livelihoods and local infrastructure force families to choose between rebuilding and maintaining essential consumption. This often leads to reduced expenditure, increased indebtedness and prolonged recovery, with losses compounding over time. Without support measures, transition costs and losses may deepen inequality with the potential to destabilise markets (UNDRR, 2025[11]). Addressing these financial vulnerabilities is therefore essential to prevent recurrent loss cycles that erode household resilience and local economic stability. Equitable, locally tailored interventions are vital for a just and resilient real estate transition.
Climate policies in real estate are most effective when they integrate equity safeguards, to prevent the costs of transition and resilience falling hardest on vulnerable households. Low-income communities and deprived areas are often the most exposed to floods, fires and heatwaves, yet least able to afford insurance, retrofits or rising rents. If regulations and finance only serve wealthier owners, the result is displacement and widening inequality, ultimately undermining long-term climate goals. The most vulnerable households and renters – those with low incomes, living in older housing, with insecure or informal tenure, or with limited mobility – may suffer the triple risk: rising insurance and energy costs, inability to afford adaptation or retrofit and loss of access to housing in safe, resilient neighbourhoods. Without sufficient policy intervention, these risks can translate into falling asset values, unaffordable liabilities and in some cases displacement or reliance on substandard housing conditions.
Without sustained and targeted assistance, the shift to a low-carbon housing stock risks deepening inequalities, as households unable to retrofit their homes may face higher bills and greater housing insecurity over time. In the UK, lower-income households are particularly exposed to transition risks in the built environment, as many live in older, energy-inefficient homes that are costlier to heat. In 2024, 36.3% of households (8.99 million) were required to spend more than 10% of their income on domestic energy, an increase from 35.5% (8.73 million) in 2023, underscoring the widening affordability pressure. While measures such as the Energy Company Obligation, Winter Fuel Payments and Cold Weather Payments provide support, upfront costs for insulation and low-carbon heating remain prohibitive for many households with limited savings contributing to household fuel poverty (Government of the United Kingdom, 2025[115]).
Climate-related physical hazards can drive long-term housing shortages and income loss for low-income households. In Pakistan, the 2022 floods destroyed approximately 780 000 houses and partially damaged another 1.27 million across the 94 calamity hit districts. Many affected households experienced simultaneous income losses and asset destruction, forcing families to take on high interest borrowing or reduce essential consumption to finance basic repairs. Reconstruction progress has been slow due to limited access to affordable credit and rising construction material costs, pushing many residents to return to unsafe or temporary structures. These delays deepened long-term income shocks and disrupted local construction and labour markets (Government of Pakistan, Asian Development Bank, European Union, United Nations Development Programme, & World Bank, 2022[116]; Government of Pakistan, 2022[117]). As Pakistan continues to face repeated large scale flooding disasters, real estate resilience strategies must include targeted financial support for low-income households to prevent recurrent loss cycles, displacement and declining urban wellbeing (UNICEF, 2025[118]).
In informal settlements, more than 70% of buildings globally are self-constructed, yet receive a disproportionately small share of climate finance to support resilience. Globally, 1.1 billion people live in informal settlements, a number projected to rise to 2 billion over the next 30 years (IIED, 2025[119]). Informal settlements are often located in high-risk zones such as floodplains, steep slopes and coastal margins without access to basic infrastructure or municipal services to mitigate risks, such as appropriate drainage. The burden of climate-related risk in these informal settlements is disproportionately carried by residents, who absorb the full cost of housing loss, infrastructure failure and service disruption (Cities Alliance, 2024[120]). Despite this extreme vulnerability, only 3.5% of global climate finance (equivalent to USD 1.2 billion) has projects inclusive of the urban poor (IPCC, 2022[121]; Cities Alliance, 2024[122]). Globally, fewer than 7% of countries explicitly reference informal settlements or slums in their most recent Nationally Determined Contributions (NDCs), with only 13 out of 188 parties doing so as of mid-2025 (Habitat for Humanity International, 2025[123]). (IPCC, 2022[121]; Cities Alliance, 2024[122]).
Informal communities can help shape frontline climate-related risk resilience through practical, locally led adaptation. In Nairobi (Kenya)’s Kibera settlement, where more than 250 000 residents live in flood-prone areas along the Ngong River, a network of 12 public spaces function as first-responder hubs, improve drainage, support livelihoods and provide services such as laundry areas, sanitation blocks, kiosks and water points through community-led action. Operating since 2006, the network directly serves 3 470 households within 100 metres of the sites and indirectly supports more than 15 600. As part of this wider effort, the Kounkuey Design Initiative (KDI)’s Community Responsive Adaptation project from 2017 to 2024 tested locally led flood mitigation across three sites in Andolo, Vuma and St John’s using donor funding and community co-financing of up to 5% (K’oyoo, 2024[124]). The interventions combined structural measures (such as gabions, drainage upgrades, permeable paving, rain gardens, rainwater harvesting and under-plaza flood storage) with social facilities (including play areas, multipurpose halls, water kiosks and safer access routes). A four-year panel survey of more than 1 500 households, supported by 2D flood modelling and qualitative research, showed reductions in flooding and improved access to basic services (UNFCCC, 2025[125]; Dessie, E., Oranga, A., & Lines, K., 2025[126]). Similar projects are being supported in Kenya and across the 77 member countries of the Coalition for High Ambition Multilevel Partnerships (CHAMP), launched at COP28, which promotes stronger alignment between national climate policy and local implementation (CHAMP, 2025[127]; WRI and CHAMP, 2025[128]).
Where formal banking systems exclude low-income and marginalised populations, community-based savings groups offer a local mechanism to finance basic housing repairs and resilience upgrades. Globally, over 80% of the world’s 1.4 billion unbanked adults live in areas at high risk of social and environmental shocks (World Bank, 2025[129]). Without access to mortgages or home-improvement loans, these unbanked households are often left to self-finance climate-related housing upgrades, such as reinforcing structures against storms or elevating floors in flood-prone areas. In Uganda, although 71% of adults have some form of savings, only 39% save at formal financial institutions or through mobile money. Similarly, while 77% borrow, only 29% do so via banks or mobile platforms (UNCDF, 2023[130]). Community-based savings group systems operate as financial safety nets by distributing the financial consequences of shocks across members of a community or network where formal credit or insurance is unavailable. Low-income households also often have limited or no insurance coverage for climate-related losses, as premiums for flood or storm protection frequently exceed what they can afford. As a result, post-disaster recovery depends heavily on public relief and informal support networks, which can meet immediate needs but rarely finance reconstruction (OECD, 2023[131]; OECD, 2022[16]). Strengthening access to affordable insurance and community risk-sharing can therefore reduce recovery delays and lessen the financial burden on households and local governments (UNDRR, 2025[11]).
At the micro level, traditional risk transfer is shared within community groups through emergency support savings groups. These structures take various forms and serve as a complement to the formal banking and insurance sectors by addressing the needs of underserved market segments. Informal arrangements typically involve small-scale, short-term and unsecured loans, primarily targeting rural communities, agricultural activities, households, individuals and micro-enterprises. Unlike traditional banks, informal lenders leverage social relationships and reputational mechanisms to monitor borrowers and enforce repayment, often better suited to context where formal credit systems are inaccessible (CARE, 2021[132]).
Savings groups are often used to fund access to formal property rights, housing upgrades and post-disaster housing repairs. Examples of such systems span the globe, from Cameroon’s Njangi circles and West Africa’s Tontines to the Caribbean’s Sou-Sou networks and Chinese Hui savings (Ayyagari, Demirgüç-Kunt and Maksimovic, 2020[133]). Also referred to as Rotating Savings and Credit Associations (ROSCAs), they are widespread across Africa, Asia and Latin America as well as within migrant communities in host nations (Semin, 2007[134]). Each member contributes regularly to a shared fund, which is distributed in rotation or as needed for investment or emergency purposes (Smets, 2000[135]). In Ethiopia, Idir networks collect pooled savings that fund funerals, housing repairs and informal insurance against extreme weather shocks (Melkamu et al., 2025[136]). Similar models include Mutual Aid Groups in East Asia and Savings and Internal Lending Communities (SILCs) or Village Savings and Loan Associations (VSLAs) in sub-Saharan Africa.
Informal finance is limited by its inability to fully substitute formal financial systems. Its reliance on interpersonal trust and community-based enforcement makes it difficult to scale, restricting its capacity to meet the demands of larger, more complex enterprises. Despite these constraints, informal savings and credit systems offer substantial benefits, including greater financial inclusion, strengthened social ties, risk-sharing mechanisms, easier access to credit, reduced dependence on conventional banks, disciplined savings practices and enhanced financial awareness (UNDRR, 2025[11]; Cities Alliance, 2024[120]).
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