Integrating Environmental Considerations in Real Estate Underwriting, Phase 2
Professional standards paper by INREV (2025) | Underwriting, Financing, Capital Stack
Curators: Asha Lad and Bill Bateman
London, UK
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Why we recommend it: This second phase of INREV’s work is particularly compelling, as it reflects an approach to real estate underwriting that many investors have been working to advance in practice for several years. Anabeya, the alternative asset management company founded by Asha and Bill, has long championed deeper understanding of how environmental considerations influence investment conviction, asset strategy, and long-term value within underwriting. This piece is curated through that very experienced lens.
Phase 2 represents a meaningful shift from awareness to practical application. By developing and testing a DCF‑based underwriting model, INREV moves the discussion beyond identifying environmental principles to examining how these factors influence cash flows, capital planning, and exit assumptions over time. This shift is significant, as it brings sustainability into the core mechanics of underwriting, where trade‑offs are evaluated and decisions are ultimately made.
The paper’s realism also stands out. It acknowledges the challenges investors face today: incomplete datasets, inconsistent market evidence, and evolving regulation. Rather than imposing certainty where it does not yet exist, the model is used to explore sensitivity, sequencing, and downside exposure. In practice, this is where sustainability analysis is most effective, not as a guaranteed source of value uplift, but as a lens for understanding risk, resilience, and optionality across the investment hold period. This approach encourages more nuanced strategy discussions and supports credible value‑creation pathways.
While energy efficiency and retrofit timing show the most observable payback characteristics, the report avoids overgeneralizing these findings across asset types or markets. Sustainability is positioned primarily as a driver of risk mitigation and protection against future obsolescence, with value creation emerging selectively and unevenly. This perspective aligns closely with Anabeya’s experience.
Key takeaways:
- A practical underwriting lens - INREV developed a DCF-based Excel model to analyze how environmental factors influence operational metrics, projected values and investment performance over a 10-year horizon, grounding sustainability firmly within underwriting mechanics.
- CapEx timing is critical - The distinction between immediate and deferred sustainability-related CapEx, and the implications for payback periods, is central. Energy consumption emerges as the most quantifiable factor within the modelled scenarios, particularly where retrofit timing is carefully planned.
- Limited evidence for direct value uplift - In the absence of robust, comparable market evidence linking environmental upgrades to rental growth or material OpEx savings, the model avoids embedding strong uplift assumptions. This emphasis is appropriate given current limitations in market evidence, while also highlighting how improvements in data quality and comparability will be critical to accelerating the integration of sustainability considerations into underwriting and valuation practice.
- Asset-level complexity dominates - Each asset’s physical condition, characteristics, regulatory exposure and asset management strategy materially influence outcomes. Sustainability impacts are often embedded within wider business plans, making isolation difficult and underscoring the need for case-by-case analysis.
- Data constraints remain structural - Data gaps, inconsistent quality and the lack of universally accepted environmental CapEx classifications continue to limit comparability across markets and sectors. Assumptions and scenario testing therefore remain essential.
- Five guiding principles for investors - The paper highlights early engagement with valuers, estimating sustainability-linked CapEx and payback, scenario testing, prioritizing ESG risk mitigation, and transparency of assumptions as practical foundations for integration today.
Ultimately, the significance of this phase lies in its recognition of real‑world practice. It validates a more integrated underwriting mindset, one grounded in judgment, asset‑level analysis, and transparent assumptions. As the industry continues to build evidence and consistency, this work feels less like a turning point and more like a natural progression in the market’s evolution.
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