Dee Korab on when climate risk hits home
Dee Korab, Head of Impact at Puma Property Finance, explores why climate resilience is becoming a critical factor in real estate investment and development.
An extraordinary heatwave hit Europe recently with record temperatures reached across the continent1. In the UK, where temperatures reached 37.7°C, the Met Office issued three consecutive red weather warnings for the first time, indicating a risk to life for even the healthiest of the population2.
It happened to coincide with London Climate Action Week (LCAW), the largest climate event in Europe. And while some events were cancelled, many policymakers, business leaders, investors and community representatives still made it to packed and often overheated rooms, despite school closures, cancelled trains and temperatures of over 39°C on the London Underground. This gave us first-hand experience of how well our building stock actually performs in these conditions. In short, a mixed bag, and overall, not well.
It was particularly striking to hear so many large-scale institutional property owners speak about climate risk. It is no longer just a high-level screen but is becoming a core part of the underwriting process and a standing item for investment committees when considering real estate acquisitions.
Climate risk falls into two categories: transition and physical risk.
Transition risk is the risk that an asset is stranded due to changing market demand or regulation. In the UK, Minimum Energy Efficiency Standards (MEES) regulations set the minimum EPC requirements, which are used as a proxy for transition risk in the built environment. Just the week prior to LCAW, the UK government released an update to MEES guidelines, which would prohibit properties below EPC B to be let after 2031, setting the baseline for lenders and investors today3.
Physical climate risk is the direct impact of climate and weather events on an asset itself. For real estate, this can be the physical damage to the property, the disruption to business operations, and increasingly, the cost of insurance. A number of insurers highlighted at LCAW that climate risk is posing a threat to insurance availability but in the future asset-level resilience measures may improve insurance terms.
In the UK, the most relevant physical risks to the built environment are flood, heat, wind and subsidence from drought or heat. While the core climate risk considered and understood by capital markets to date has been flood risk, heat risk is becoming more of a threat.
Increasingly, institutional asset owners use climate risk data. But as an industry, we’re still determining how to use this data: a medium to high risk shouldn’t necessarily mean divesting, but will require additional mitigating measures. Some of those mitigants are understood. In hurricane prone markets in the US, it is now common practice for investors to look for flood barriers, raised floors and for core mechanical services to be moved out of the flood-prone basement of a building.
While industry standards are still emerging when it comes to the features that will be considered mandatory in a hot climate, measures are being put in place. For example, lenders and investors are already expecting developers to demonstrate how schemes will mitigate risks such as overheating, through design features like solar control, ventilation and material choices. This is especially relevant in real estate that serves vulnerable populations: such as schools, hospitals and care homes.
Lenders are also uniquely well placed to incentivise developers and operators of real estate to adopt climate mitigants in their designs and operating models, with Puma Property Finance’s Impact Lending Framework being a good example. Such sustainability-linked finance ensures has multiple benefits for climate-conscious lenders: it offers value alignment with like-minded investors; provides differentiation in a competitive lending market; and ensures loan collateral take the form of best-in-class assets.
For new construction, building standards set a higher bar. Nevertheless, real estate owners and developers must be aware of the emerging non-regulatory screens and appetite drivers for end buyers, to ensure buildings are physically and financially resilient in the long term.
To remain resilient, the built environment has to do two things simultaneously: reduce emissions and adapt to a changing climate. What is less clear, is how to balance the two objectives.
It’s a complicated issue, and comes with a number of considerations, for example installing air conditioning units in every building will increase energy consumption. Passive interventions such as using outside window shutters for hotter climates are a potential solution but need to be combined with other initiatives. The industry needs to think more holistically, including integrating nature. Trees and green spaces have been shown to drop night-time temperatures in cities by up to 5°C while also lowering flood risk4.
Buildings need to be able to withstand increasingly extreme temperatures: both hot and cold. The ability to evidence these mitigations is becoming as important as traditional metrics in assessing a scheme’s long-term viability. Those that can’t, risk becoming the next group of stranded assets.
*This article was first published by FT Sustainable Views on 8 July 2026.