Sustainability: Three Big Trends in Europe to Raise Standards and Increase Long-Term Value

Sustainability has matured into a fundamental principle of investing and infused in every stage of the building lifecycle—from planning and construction to asset management, refurbishment and even demolition. As sustainability expands beyond climate and ecological risk mitigation into nature and social impact creation, as well as cross-industry influence, adoption is accelerating, amplifying the benefits.

In this article, we explore three major trends that encapsulate the significance of CBRE IM's three Sustainability Vision pillars—Climate, People and Influence. Each trend is dynamic and will likely solidify into a permanent fixture in decision-making over time.

1. Climate: The rise of whole life carbon analysis

Whole Life Carbon (WLC) analysis is a comprehensive approach to measuring the total greenhouse gas (GHG) impact of a building throughout its entire lifecycle—from planning and construction through to operational life and eventual demolition or repurposing. Driven by regulatory pressures and rising sustainability standards, WLC is becoming a critical factor in sustainable development. Ignoring these requirements can lead to significant financial and reputational risks.

Why WLC matters

WLC assessments dive into a building's value chain, measuring emissions at every stage to support GHG emissions reduction strategies. This is especially crucial during a building's development and major refurbishment phases—the most GHG-intensive stages—where the sustainability of the full building lifecycle is evaluated. WLC identifies embodied carbon from material sourcing and construction practices, through a building's operational use and refurbishment cycles, to end-of-life carbon from demolition or repurposing. Market standards¹ already exist to achieve this, with clearly defined modules for each of these lifecycle stages.

Diligent WLC analysis safeguards against long-term environmental impact, protects asset values and ensures compliance with increasingly stringent regulations. Embodied carbon will likely make up a large part of future residual emissions, which are hard to eliminate. Reducing embodied carbon today directly lowers the future cost of investing in carbon removal to offset these emissions and achieve the 'net' in net zero. Failure to act now could result in higher future costs or even surpassing acceptable residual emissions (5%-10% for real estate per SBTi), jeopardizing net zero goals.

Projects that fail to address WLC considerations may face planning delays, as well as regulatory and reputational risks, which increase costs and erode investment returns. An example is the July 2023 denial of planning permission for Marks & Spencer's flagship Oxford Circus store due to inadequate WLC planning. The EU Taxonomy requires WLC studies for developments over 5,000 sqm and the Energy Performance of Buildings Directive (EPBD) is expected to mandate WLC by 2027. Even if not formalized, investors may view it as best practice, risking customer loss if ignored. The U.K. and EU's Carbon Border Adjustment Mechanisms (CBAM) will essentially tax embodied carbon in materials, pushing developers to adopt sustainable practices and rethink material sourcing.

WLC is becoming a key factor in capital deployment decisions. As investors prioritize sustainable assets, demonstrating WLC compliance is now essential for alignment with EU taxonomy and attracting institutional capital.

Our response to WLC

At CBRE IM, we recognize the complexity of WLC for many investors. To address this, we are developing bespoke guidance—including actionable checklists and recommendations—to measure and reduce WLC footprints across a building's lifecycle. For example, we seek to better understand GHG payback periods to ensure that sustainability initiatives, such as installing solar panels or replacing heating systems, deliver long-term gains for both the planet and investment returns.

Managing embodied carbon risks proactively reduces GHG emissions and safeguards against future liabilities and the rising risks associated with carbon debts. Effective WLC management offers significant marginal gains over time. For investors, this means aligning with regulatory and market expectations while creating future-proofed assets that retain long-term value. For the planet, it represents a crucial step toward climate change mitigation through sustainable development.

2. People: Defining social impact

The relationship between policymakers and industry is dynamic—sometimes policy leads and industry follows, while at other times, policymakers wait for industry to take the first step. In our view the 'S' in ESG—social—is an area where industry is expected to lead. At CBRE IM, we are answering that call.

CBRE IM is creating a comprehensive Social Impact guide with CBRE Advisory and industry stakeholders, setting best practices tailored to local markets. This guide will be piloted in Europe and applies across the real estate lifecycle.

The guide

Our social impact approach will consider three core pillars:

• Do no harm: Minimize negative social impacts, such as noise pollution and air quality issues, to reduce disruption to local communities.
• Mitigate disruption: Implement best practices in site management and community engagement to reduce unavoidable disruptions, such as heavy vehicle traffic in residential areas during construction.
• Create social impact: Seek opportunities, based upon identified local need, to benefit the communities where we operate, such as offering access to our sites for educational purposes and supporting local charitable initiatives. We also strive to improve the wellbeing of our occupiers and users of our assets.

Embedding social impact across the lifecycle

Social impact is created both externally, through community impact, and internally, by enhancing our assets, including our global workspaces. We believe in the importance of taking a bespoke approach to designing asset-level actions and that those actions should vary based on asset class and local needs. This allows for a bottom-up and bespoke approach while upholding clear house-level standards for creating social impact. Once launched, we will seek to integrate our approach across the real estate lifecycle:

Ground-up development: Ensure new builds positively impact both occupants and the surrounding community.

• Refurbishments: Upgrade existing assets with features such as improved natural light, better indoor air quality and access to green spaces, ensuring they improve the health and wellbeing of tenants.
• Standing assets: Continuously assess and improve standing assets to align with evolving social impact goals, tenant expectations and community needs.
• Fit-out adjustments: Enhance existing spaces with natural light, communal areas and improved workplace environments.
• Our offices: Apply these principles to our own workspaces to ensure that we embody our social impact commitments. We believe that we, as a company, and our employees, have a role to play in giving back to the communities where our offices are located.

Fit-out adjustments in standing assets offer a particularly significant opportunity to enhance social impact. These adjustments can improve wellbeing without the need for full-scale redevelopment, providing a cost-effective strategy to enhance social and environmental performance. Securing investor support to drive positive social impact is crucial. An actionable social impact guide underpinned by clear key performance indicators (KPIs) will help achieve this goal.

Integrating social objectives into investment strategies

As we have integrated environmental objectives into our investment strategies, we are now working to embed social impact objectives, creating a new layer of social KPI measurement, reporting and positive change. CBRE IM is pioneering this approach with two funds already incorporating explicit social impact objectives. By transparently defining our own KPIs for social impact, we hope to provide a template for others to consider. Eventually, our internal social impact KPIs could contribute to shaping market-consensus KPIs, aligned with broader sustainability efforts.

3. Influence: Cross-industry collaboration to standardize KPIs

Despite growing momentum to integrate sustainability throughout the real estate lifecycle, a significant bottleneck remains: the lack of consistent KPIs to measure and benchmark progress. However, significant forward movement is underway, which will elevate industry-wide transparency and drive capital flows into sustainability-led investing.

Why KPIs matter

The absence of industry-consensus KPIs creates confusion and inhibits progress. Without a unified approach, stakeholders—including asset managers, investors, and regulators—define sustainable value differently. This lack of cohesion prevents effective benchmarking, limits capital-raising potential, and hinders clear communication of sustainability efforts.

Our response

To address this challenge, CBRE IM has helped to spearhead a cross-industry working group, convened by IIGCC² and RICS³ with support from academia. The project aims to clarify sustainability KPIs across the U.K. and mainland Europe, focusing on operational climate transition KPIs. The goal is to define consistent underlying assumptions for KPI calculations, which can be integrated as clarifications within existing reporting standards and guides.

Our shared ambition is that this project will increase market confidence in the core statutory KPIs so they may become recognized value points reflecting building performance improvements. For instance, the EU Taxonomy's refurbishment KPI requires a 30% reduction in primary energy demand for brown-to-green asset transitions. Standardizing how this KPI is measured and reported would help establish it as a baseline for new brown-to-green funds, boosting investor confidence and aligning investment managers. This consistency would enhance capital-raising potential and ensure regulatory compliance from the outset.

Consistent KPIs are also crucial for CapEx decisions, as they quantify how additional investment improves a building's energy efficiency. The EU's Zero Emission Building (ZEB) framework exemplifies this, enabling asset managers to determine the CapEx required to achieve ZEB status, which enhances market value and ensures regulatory compliance. A collaborative approach to standardizing KPI assumptions boosts the credibility and marketability of sustainable financial products. Asset managers can more easily justify increased CapEx if they can claim a clear value point has been achieved (e.g., highly efficient). Achieving these market recognized KPIs appeals to investors and occupiers and could potentially drive higher lease or sale values and attract a broader pool of buyers, including those with sustainability requirements like Article 9 funds.