Future‑Proofing Real Estate Investment

5. Policy pathways

Abstract

This chapter outlines policy pathways to strengthen the resilience and sustainability of real estate to climate-related risks. It presents four recommendations to guide governments in integrating climate-related risk considerations into planning, finance and governance. These focus on avoiding development in high-risk areas, improving data interoperability, harnessing financial incentives for decarbonisation and resilience and enhancing international co-ordination.

Introduction

The analysis in this report has shown that climate-related risks in the real estate sector are accelerating. They are location-specific but can have global financial impacts. Physical hazards such as floods, wildfires, sea-level rise and heatwaves are becoming more frequent and severe, while transition risks arising from stricter building standards and shifting market expectations are reshaping valuations and exposing inefficient assets. These climate-related risks also generate credit, market, underwriting, liquidity and operational financial risks linked to the real estate sector.

Climate-related shocks impose heavy financial burdens on households and small firms, with low-income communities disproportionately affected. These unequal impacts underscore the need for policies that protect vulnerable groups during the transition.

At the same time, markets and stakeholders are beginning to adapt, with new industries, tools and financial mechanisms emerging to support climate mitigation and adaptation in the built environment. These include advances in risk analytics, digitalisation, resilience-focused finance and innovative retrofit and insurance solutions, but their scale and impact remain constrained without supportive policy frameworks and co‑ordinated public action.

Policy responses remain fragmented. Risk assessments are often conducted at an aggregate level rather than reflecting local conditions. Data remain siloed or incomplete, creating asymmetries that hinder effective action. Risk transfer tools such as insurance provide financial protection but do not necessarily lead to investment in mitigation or adaptation of buildings for resilience. While climate-related risks and capital flows transcend borders, international cooperation on disclosure and standards remains partial.

This chapter sets out four policy recommendations to address these gaps and concludes with ways forward.

Recommendation 1: Avoid building in high-risk areas and make climate-related risks visible in planning and investment decisions.

Climate-related risks are inherently location-specific, yet this is not always adequately reflected in land-use planning and real estate investment frameworks. This limits effective climate-related risk mitigation and adaptation strategies. Urbanisation is increasingly expanding into areas exposed to floods, heat stress or wildfires, often driven by land scarcity, fragmented governance and weak enforcement of zoning rules. Across Europe and Central Asia, for example, urban development between 1985 and 2020 progressively occurred in flood-prone zones. This trend exposes communities and local economies to sudden physical and financial shocks, with low-income households and small businesses often the least able to absorb losses or relocate. At the same time, many existing risk-assessment practices remain constrained by incomplete or inconsistent data, a lack of forward-looking indicators and limited comparability across markets. Survey results from the OECD Future-proof Real Estate Investment Survey confirm these challenges: 58% of respondents cited the absence of granular, property-specific data, 49% pointed to unreliable or inconsistent methodologies and nearly one-third underlined gaps in location-based hazard information or unclear regulatory guidance.

Low-income households are frequently concentrated in high-risk locations such as floodplains, heat-exposed districts or informally built settlements. They often have limited capacity to absorb losses or finance relocation. Incorporating the needs of vulnerable communities into planning decisions can reduce disproportionate burdens and protect them from recurrent financial shocks. Planning decisions that account for high-risk groups can reduce disproportionate burdens and protect vulnerable communities from recurrent financial shocks.

Governments can take steps to embed forward-looking risk assessments in all stages of planning and property development. Integrating hazard maps, flood histories and climate projections into zoning plans, building codes and permitting processes can help prevent new construction in high-risk areas and reduce future fiscal liabilities. This approach strengthens place-based decision making and protects vulnerable neighbourhoods that face disproportionate exposure to climate-related hazards. Making climate-related risks visible to market participants through systematic disclosure at key transaction points, such as property sale, lease or mortgage issuance, would enhance transparency and align private incentives with long-term resilience objectives.

Policy instruments should leverage both regulatory and financial levers. Regulatory measures such as minimum performance standards for energy and carbon can set clear baselines for sustainable construction and renovation. Financial incentives including subsidies, tax deductions or preferential lending conditions can complement these rules and help offset transition costs. Well-designed instruments can reduce unequal impacts on households and enterprises in high-risk locations, preventing the concentration of climate-related risks in already disadvantaged areas. According to the survey results, the most effective tools to accelerate sustainable investment are minimum performance standards (cited by 67% of respondents) and financial incentives (56% of respondents).

Recommendation 2: Promote open, interoperable and localised climate-related risk data for real estate and its disclosure.

Reliable and comparable data are the foundation of effective climate-risk management in real estate. Yet current data systems remain fragmented across boundaries and authorities, sectors and asset classes. Disclosure frameworks vary in scope and methodology, which limits comparability and transparency. This fragmentation weakens the ability of both public and private actors to assess risks consistently and to incorporate them into decision making. In practice, this lack of data obscures how climate-related risks concentrate in specific locations and can disproportionally affect low-income or informal areas. According to the OECD Future-proof Real Estate Investment Survey, 44% of respondents identified misalignment between global frameworks as a key barrier, while 35% cited a lack of data at the appropriate scale and 35% a lack of cost-efficient assessment methodologies.

Governments can address these gaps by developing open and interoperable data ecosystems that combine hazard information, asset characteristics and forward-looking climate scenarios. National data platforms can integrate property-level indicators such as exposure to floods or heat stress, energy performance and building characteristics, allowing these climate-related risks to link with financial, insurance and planning systems. Making such datasets publicly accessible can improve risk visibility and enable more consistent assessments across markets. Accessible, easy-to-use and locally relevant data, presented through formats and tools adapted to local authorities, investors and developers, can support practical real estate decision making. By reflecting place-specific climate-related risks and conditions, such data helps ensure these decisions are better informed and more effective to direct support where exposure and social risk intersect.

Creating interoperability across data sources and frameworks is essential for comparability and international alignment. Shared definitions, standardised data structures and harmonised taxonomies can reduce duplication and improve efficiency for investors, lenders and regulators. Public authorities can further strengthen data reliability by referencing internationally recognised frameworks, while allowing flexibility to reflect local market conditions.

Recommendation 3: Consider financial incentives that promote resilience and decarbonisation of real estate through retrofits, adaptation and protective infrastructure.

Climate-related hazards can trigger significant economic losses in real estate, where physical damage to buildings can rapidly translate into asset devaluation, loan defaults and broader market disruption. At the same time, insurance markets are under increasing pressure from growing climate-related losses, which raises concerns about the long-term affordability and availability of coverage in high-risk areas.

These impacts are not evenly distributed: households with low incomes, renters and those living in older or informally built housing face higher exposure and have fewer resources to afford insurance, retrofits or rising energy costs. Ensuring that financial incentives and public investment are accessible to vulnerable households is essential to prevent widening inequalities and to support a just transition in the housing sector.

In this context, resilience is an emerging value driver for real estate investment, as assets that are better adapted to climate risks are more likely to preserve value, remain insurable and maintain access to finance. Public policies play a critical role in supporting this shift by providing clear signals, reducing investment uncertainty and aligning incentives to mobilise private capital towards resilience measures.

Governments can align fiscal frameworks, public investment and financial regulation with decarbonisation and resilience objectives. Public budgets and tax policies can prioritise spending that supports energy efficiency, adaptation and risk prevention, thereby reducing long-term fiscal exposure to climate-related losses. By signaling clear policy priorities, governments can help mobilise private capital toward preventive measures, including energy retrofits, adaptation projects and protective infrastructure such as dams, dykes and nature-based solutions. Targeting investment at high-risk neighbourhoods can also strengthen place-based resilience and reduce unequal exposure to climate impacts.

Financial instruments and incentives play a central role in enabling this shift. For households and small property owners, concessional or low-cost loans, green mortgages and pooled retrofit financing vehicles can lower the cost of capital for energy and resilience upgrades. For commercial property owners and institutional investors, instruments such as resilience bonds, credit-enhanced structures and blended finance facilities can expand investment in adaptation and community-scale infrastructure.

By combining targeted public investment with clear regulations, instruments and incentives, governments can safeguard property values and support the transition to a low-carbon and climate-resilient built environment.

Recommendation 4: Apply and help develop international standards for measurement and reporting, given the global nature of real estate finance.

Climate-related risks and financial exposures in real estate are global in scope, yet current assessment and disclosure practices remain highly fragmented across jurisdictions. Investors, lenders, insurers and property developers use different scenarios, models and assumptions, which limits comparability and transparency. Disclosure requirements also vary internationally, leading to divergent risk assessments and inconsistent integration of climate-related information into financial decision making. The co-existence of multiple rating and certification schemes further complicates cross-border understanding of asset performance and hampers effective risk management.

Governments can strengthen international co-ordination to improve the interoperability of climate-related risk assessment and disclosure across real-estate markets. Promoting shared reference points, such as internationally recognised disclosure frameworks and standardised reporting principles, would improve transparency and comparability of information. Aligning terminology, data classification and performance metrics can also reduce uncertainty for cross-border investors and help regulators assess systemic risks more effectively. Stronger alignment can support more responsible investment decisions that account for location-specific exposure and the needs of local populations.

International platforms for dialogue and cooperation can help foster convergence and knowledge exchange. Collaboration among governments, financial supervisors, research institutions and industry associations can accelerate learning on zoning practices, adaptation measures, financial instruments, certification schemes and transition pathways. Regional partnerships and risk-pooling mechanisms can also enhance financial protection and distribute losses more efficiently, particularly in markets with high exposure to recurrent climate hazards with limited capacity to recover.

By anchoring a coherent international framework for climate-related risk disclosure and data sharing, governments can facilitate investment flows, strengthen market confidence and promote a more consistent and resilient global real-estate system.

Ways forward

Future analysis could help capture climate‑related risks with greater granularity. Current evidence remains overly aggregated across countries, sectors and asset classes, limiting its relevance to inform targeted action. Risks need to be disaggregated by geography (urban versus rural, high- versus low-income areas), building type (residential, commercial, industrial, public) and ownership structure (institutional, household, informal) to better inform risk management and policy responses.

In addition, the extent of climate-related risk evaluation across real estate markets globally remains largely unknown. There is no clear baseline on what share of global real estate assets undergo such climate-related risk assessments. Future work could take stock of the volume of real estate portfolios evaluated for climate-related risks relative to the total asset base, disaggregated by country.

Further analysis of the role of different financial actors, including retail banks and development finance institutions, could provide clearer insights into how capital can be mobilised towards future-proofing real estate, particularly in non-OECD countries and regions most at risk.

Finally, evidence from emerging and developing economies needs to be strengthened. These countries are projected to account for the majority of new building stock by 2050, but data on climate‑related risks, asset valuation and investment trends in these countries remain scarce. Developing partnerships between governments, research institutions and international organisations to close these knowledge gaps would help ensure that future analysis and recommendations are globally relevant.