Sustainability increasingly pivotal in European real estate lending, with unsustainable assets poised for devaluation

Half of lenders in Europe are implementing minimum sustainability criteria at the asset level as a prerequisite for new lending activities, according to CBRE’s recently published 2025 European Lender Intentions Survey. Furthermore, 45% of lenders in Europe require business plans for assets failing to meet these criteria, while 42% are inclined to provide more favourable loan terms if the assets are more sustainable. These findings suggest that sustainability is increasingly emerging as a pivotal consideration in financing decisions across Europe.

The asset-level sustainability criteria can encompass various data points/indicators, including carbon emissions, energy and water consumption, Energy Performance Certificates (EPC), and resilience metrics pertaining to both physical and transitional climate-related risks. Additionally, benchmarking assets against industry standards, such as the Global Real Estate Sustainability Benchmark (GRESB), serves as another evaluative tool. Nevertheless, the availability of data points/indicators, their relative importance to lenders, and consequently their influence on pricing can differ significantly across countries. For instance, the European Union's Energy Performance of Buildings Directive (EPBD) requires securing EPCs during the construction, sale, or rental of buildings. However, the dynamics within various countries are considerably more complex, which results in many European properties still lacking verified minimum energy efficiency performance.

Figure 1: In what ways do sustainability criteria influence your lending on real estate?

The primary objective of asset-level sustainability criteria is to mitigate adverse impacts associated with financing operations; however, the criteria are intrinsically linked to lenders' own risk management processes and risk mitigation strategies. Sustainability considerations are therefore increasingly being integrated into European due diligence, underwriting, deal structuring, and loan documentation practices. Ultimately, this approach enables lenders to maintain oversight of their existing loan portfolios.

Risk assessment of underlying asset characteristics can result in market segmentation

In instances where lenders are providing margin stepdowns, as indicated by 31% of respondents (Figure 1), approximately two-thirds of these lenders express a willingness to offer a margin stepdown of up to 10 basis points for assets that demonstrate sustainability characteristics. This finding is consistent with the previous year's results, wherein approximately 59% of lenders willing to offer margin stepdowns also proposed reductions of up to 10 basis points. Conversely, among lenders implementing a margin increase (22%, Figure 1), approximately 50% would require a margin increase of 10+ basis points for assets that fail to adhere to established sustainability standards.

This situation suggests a potential market segmentation based on the risk evaluation of the underlying asset characteristics. Given the recent regulatory frameworks for managing sustainability-related risks outlined in the EBA Banking Package and Basel IV Framework, the introduction of new methodologies is expected to diminish dependence on internal lender models and facilitate a standardised approach to risk assessment. Consequently, this may lead to an increasingly bifurcated lending market, where assets with poorer sustainability credentials could face a limited subset of lenders willing and able to lend.

Figure 2: How much of a margin increase/decrease would you require?

We’ve reached a critical juncture, wherein real estate appraisers may commence the devaluation of progressively obsolete, stranded, or secondary assets, attributable to their insufficient sustainability credentials, which diminish their attractiveness to both occupiers and investors. Consequently, the yields associated with such properties are expected to rise.

Business plans and sustainability targets are impacting lending practices

In cases where lenders require the submission of a business plan for assets that do not meet predefined criteria, as indicated by 45% of respondents (Figure 1), three-quarters of lenders conduct progress monitoring on an annual basis or with greater frequency. Furthermore, over 60% of lenders integrate sustainability performance targets (SPTs) into their evaluation of business plans designed to improve the performance of the underlying assets. Typically, three or four SPTs will be set, for example, relating to improving the energy efficiency of an asset, using more renewable energy, or reducing emissions of greenhouse gases. There is an incremental pricing benefit for meeting the SPTs that are set by the loan, and in contrast, penalties for not achieving those.

Figure 3: How do you monitor and incentivise performance of business plans to improve sustainability credentials for assets you lend towards?

Often, the SPTs will be linked to an asset’s energy profile. This heightened emphasis on energy can be attributed to a confluence of regulatory imperatives aimed at aligning operations with the EU Taxonomy, alongside increasing empirical evidence highlighting the value advantages associated with energy-efficient properties. In this context, properties with high-risk profiles typically exhibit suboptimal quality and/or sustainability attributes, resulting in poor energy performance. It is plausible to foresee a proliferation of assets that fail to satisfy the criteria set by most lenders yet still necessitate financing for refurbishment. Addressing this challenge will not be straightforward and will necessitate the development of a credible refurbishment strategy accompanied by a realistic timeline.

Conclusion

The results of the 2025 European Lender Intentions Survey highlight the importance of sustainability in risk management among lenders. Climate-related risks are rapidly evolving, adding to the complexity of the risk management procedures since the conventional duration of a commercial real estate loan typically spans three to five years. Variations in regulatory frameworks, market dynamics, and insurance expenses may compel lenders to transcend traditional risk management approaches, fostering value creation through the innovation of new products and business models, thereby facilitating the mobilisation of novel capital sources.

Moreover, throughout the tenure of the loan, the priorities of borrowers and lenders may exhibit divergence contingent upon their respective levels of control over the underlying asset. Specifically, landlords, who maintain control over the asset, are inclined to prioritise potential upside gains. In contrast, lenders typically concentrate on minimising the likelihood of default. Notwithstanding their disparate perspectives, both parties ultimately seek to strike an optimal balance between risk and return.

Looking ahead, this disparity in strategic orientation has the potential to result in competitive differentiation within the financial services industry. Financial institutions that choose to emphasise sustainability-linked value creation through their financing strategies will likely exhibit a heightened capacity for opportunity identification and the development of innovative financial products. This will prove to be instrumental in ensuring sufficient, stable, and committed capital and financing that is aligned with Europe’s sustainability objectives.

For the full analysis, explore our 2025 European Lender Intentions Survey.