Decripting

Commercial real estate: a strategic asset for banks in the age of Net Zero

6 minutes de lecture

5/21/25 9:57 AM

11:17

In a global context where the fight against climate change is becoming ever more pressing, commercial real estate is emerging as a key sector for achieving ambitious sustainability targets. While carbon emissions from building construction and operation continue to represent a considerable challenge, the commitment to a Net Zero future appears not only as an environmental necessity but also as a sustainable investment opportunity. This shift towards decarbonization thus offers new prospects for commercial real estate players, who are now faced with the imperative of adapting their practices, investment strategies and asset management to these major challenges.

The specifics of commercial real estate

Diversity of assets: Commercial real estate offers a wide range of opportunities, from small retail spaces to large logistics centers, enabling banks to diversify their investments.
Stable rental income: Commercial leases, often of long duration, ensure regular and predictable income, attractive to institutional investors.
Potential appreciation: Commercial real estate can experience value appreciation over time, offering potential capital gains.
Leverage: Banks can use leverage to finance the acquisition of real estate assets, increasing their potential yield.

Current challenges in real estate decarbonization

The building sector plays a crucial role in the fight against climate change. In France, it accounts for 23% of national greenhouse gas (GHG) emissions according to ADEME figures, or 43.8 million tonnes of CO2 equivalent in 2021 [1][2]. On a global scale, construction is one of the main contributors to GHG emissions, emitting as much CO2 every three years as all other activities on the planet do in a single year [1].

The impact of buildings on carbon emissions

Buildings, whether tertiary or residential, are major energy consumers, accounting for 45% of national consumption. This high consumption translates into indirect emissions of around 30 megatons of CO2e, or just over 7% of national emissions. Furthermore, in 2019, the construction of a new building was responsible for around 60% of the sector's carbon footprint [1].

Emission reduction targets by 2030

France is committed to a trajectory of carbon neutrality by 2050, in line with the Paris Agreement. To achieve this goal, the Stratégie Nationale Bas Carbone (SNBC) aims to reduce GHG emissions in all sectors, including buildings [2]. However, the rate at which emissions are falling is deemed insufficient to achieve the reduction targets of at least 40% by 2030 compared to 1990 [3].

Although emissions from the buildings sector fell sharply in 2022 (-14.70%), this was mainly due to mild winter temperatures and energy price inflation, which pushed the French towards energy sobriety. Excluding weather effects, buildings would have reduced their emissions by just 5.3% [3]. The Haut Conseil pour le Climat (HCC) points out that current policies are not enabling enough properties to be renovated, with only 66,000 residential homes renovated in 2022 compared with a target of 370,000 renovations per year by 2030 [3].

Sustainable renovation strategies

To achieve the greenhouse gas emission reduction targets set by the Paris Agreement, the renovation of existing buildings is emerging as a vital [4] strategy. While new construction plays a key role through its ability to rapidly achieve the necessary emissions reductions, it is hampered by slow renewal rates. Renovation thus offers a practical and carbon-efficient route to achieving these goals.

Importance of deep renovation

The tertiary sector decree, which came into force on October 1, 2019, obliges tertiary buildings and their stakeholders to reduce their energy consumption by 40%, 50% and 60% by 2030, 2040 and 2050 respectively, compared with a reference year. This applies to tenants and owners of tertiary buildings with a floor area greater than or equal to 1,000 m2 [2].

To ensure compliance with the decree, it is vital to situate the current building in relation to the requirements, notably via energy audits and the implementation of consumption monitoring platforms. This will help define the most favorable reference year and clarify the respective obligations of the parties involved.

Decarbonization of heating

Investment in energy improvements such as insulation, HVAC systems, smart lighting and renewable energy generation can lead to substantial reductions in energy-related costs and day-to-day operational emissions in commercial buildings.

As far as heating is concerned, the main levers are the replacement of oil- or gas-fired boilers with low-carbon systems (heat networks or heat pumps), better building insulation, sobriety (reducing heating temperatures) and efficiency actions (boiler maintenance, building control), as well as switching some buildings to biogas [6].

Investments needed to meet 2030 targets

According to a recent study, current levels of investment in the energy, buildings and transport sectors represent only half of the total investment needed each year to meet the EU's climate targets by 2030. Indeed, a global average annual investment of at least 813 billion euros, or 5.1% of EU GDP, would be required, while investment in the real economy reached only 407 billion euros in 2022. This European climate investment gap thus amounts to 406 billion euros per year, or 2.6% of GDP [4].

Current investment deficit

In the French real estate sector, this lack of investment is reflected in a delay in formalizing a real estate strategy and deploying governance tools to steer it. What's more, the "investment wall" needed to begin the transition to a sustainable real estate stock is estimated at between 140 and 150 billion euros by 2050 by Cerema [5]. These technical needs and the need to structure the renovation sector are already dangerously slowing down renovations on the private market.

Necessary contribution from homeowners and lenders

To meet this investment challenge, property owners and lenders have a crucial role to play. Owners need to incorporate sustainability criteria into their investment decisions, favoring certified buildings and environmentally friendly construction standards. This will not only reduce the carbon footprint of buildings, but also provide greater comfort for tenants and increased asset value.

As for lenders, harnessing green data enables them to analyze the risks and opportunities associated with a real estate project in terms of sustainability. This data, such as energy performance, water consumption and climate risks, is essential for making informed decisions on financing sustainable projects. However, access to reliable, standardized data remains a major challenge, requiring the development of common standards and methodologies [7].

The challenges for banks

Climate risk: Environmentally non-performing real estate assets are likely to lose value, resulting in financial losses for banks. What's more, according to a France stratégie report, the average annual global amount of stranded assets due to global warming could vary from USD 300 billion to USD 1,000 billion by 2050, depending on the scenario.
Investor expectations: Institutional investors are increasingly sensitive to ESG criteria (Environmental, Social and Governance) and are demanding more sustainable investment portfolios.
Investment opportunities: Energy-efficient building renovation and the construction of new green assets offer new investment opportunities for banks.
Financing role: Banks can support the transition to Net Zero by offering green financing and developing innovative financial products.

Actions to implement

To integrate Net Zero into their real estate investment strategy, banks must:

Assess the carbon footprint of their existing portfolio and identify the most energy-intensive assets.
Define emissions reduction targets and implement action plans to achieve them. Several major banks have already committed to achieving carbon neutrality for their real estate portfolios by 2050. [8]
Prioritize investments in energy-efficient assets or those with renovation potential.
Develop partnerships with players specialized in energy renovation and sustainable construction.
Sensitize and train their teams to the challenges of Net Zero and sustainable finance.

Faced with these challenges, Kls is positioning itself as an essential partner for banking institutions. Our Debt Tracking functionality, features a section specifically designed for commercial real estate financing, supporting banks at every stage of their process, from risk analysis to portfolio management and environmental performance monitoring. Our intuitive, collaborative platform facilitates communication between the various stakeholders, accelerating project implementation and promoting an efficient transition to a Net Zero real estate portfolio.

Conclusion

All in all, moving towards Net Zero commercial real estate represents a major challenge but also a tremendous opportunity to redefine practices, investments and asset management in the sector. These approaches are not only crucial to achieving carbon neutrality, but also constitute levers for economic opportunities and asset enhancement.

The involvement of all players, from owners to investors to lenders, is essential to overcome today's challenges and capitalize on the long-term benefits of a green transition. The implications of this commitment go beyond the sector and are part of a global perspective to combat climate change, underlining the urgency and importance of promoting buildings that consume less energy and respect the environment. Thus, by implementing the strategies mentioned, commercial real estate can significantly contribute to a sustainable future for all.