Valuing the Future: A Roadmap for Integrating Climate-Related Risk Factors into Canadian Commercial Real Estate Valuation

Report by REALPAC and Canada Green Building Council (2026) | Asset Management, Risk Mitigation, Valuation

Curator: Alexandra Faciu

Montréal, Canada

This post is accessible to all readers.

Why we recommend it: This perspective shows how climate risk is already reshaping asset values, financing terms, and insurance availability, giving investors and practitioners a clearer line of sight into where the market is heading, specifically for the Canadian market. It translates emerging regulatory, physical, and capital‑market pressures into actionable valuation considerations that help stakeholders distinguish resilient assets from those facing accelerated obsolescence. It also supports more transparent, risk‑aligned pricing across the sector, reducing the likelihood of mispriced portfolios and stranded value. Ultimately, it strengthens market credibility by aligning valuation practice with the way lenders, insurers, and institutional capital are already assessing climate‑related financial exposure.

Key takeaways:

- Canada’s commercial real estate sector is entering a decisive phase in which climate-related risks have become financially material and impossible to ignore. REALPAC and the Canada Green Building Council’s joint report argues that valuation practice in Canada has not kept pace with the accelerating physical impacts of climate change or the global transition to a low‑carbon economy. The result is a widening disconnect between how lenders, insurers, and investors price risk and how appraisers currently reflect—or fail to reflect—those same risks in market value opinions.

- The report frames climate exposure through two categories. Transition risk captures the growing threat of asset obsolescence as regulations tighten, carbon pricing escalates, and tenants and investors increasingly demand low‑carbon buildings. Physical risk encompasses the direct consequences of climate events such as flooding, wildfire, extreme heat, and windstorms. Both forms of risk are now quantifiable through metrics including energy use intensity, greenhouse gas intensity, and climate value at risk, and both have clear financial implications for liquidity, operating costs, insurability, and long‑term value.

- Evidence of financial impact is already visible. Insured catastrophic losses in Canada have surged from an annual average of $405 million in the 1980s and 1990s to $8.5 billion in 2024, with uninsured losses estimated to be three to four times higher. A meaningful share of Canadian commercial assets—including those held by public REITs—sit in high‑exposure zones; 17% of REIT properties examined were located within a 200‑year floodplain. Insurers are responding with higher premiums and, in some cases, withdrawal of coverage, directly affecting net operating income and asset liquidity.

- Transition risk is tightening in parallel. OSFI’s Guideline B‑15 requires federally regulated financial institutions to assess and disclose climate‑related financial risks, influencing mortgage underwriting and lending terms. Municipal and provincial regulations—from Vancouver’s Building Performance Standard to Quebec’s Bill 41 and the BC Energy and Zero Carbon Step Code—are raising compliance obligations and capital expenditure requirements. Buildings with high carbon footprints are already facing less favourable financing, higher vacancy risk, and accelerated obsolescence.

- Capital markets reinforce this trajectory. Institutional investors increasingly allocate to low‑carbon assets as a core risk‑management strategy. Major corporate tenants have committed to 100% renewable electricity, making sustainability a baseline leasing requirement. Meanwhile, global supply of low‑carbon office space is projected to fall far short of demand, creating pricing pressure for high‑performing assets. Academic research consistently shows rent and value premiums for green‑certified buildings, but the report notes that these premiums evolve into brown discounts as markets mature—penalising assets that fail to transition.

- A critical misalignment emerges: lenders and insurers are already pricing climate risk, while Canadian valuation standards often do not. International Valuation Standards now require explicit consideration of ESG factors, but CUSPAP has yet to adopt equivalent requirements. To close this gap, the report proposes a five‑part roadmap: adopt IVS within CUSPAP; create a standardised climate‑risk data framework for all valuations; consolidate credible benchmarks across asset classes; build appraiser competency through training; and adapt discounted cash flow methods to incorporate climate‑sensitive assumptions across operating costs, capital expenditures, leasing risk, and exit liquidity.

- The report concludes that integrating climate‑related risk into valuation is no longer optional. It is essential to producing credible, market‑aligned appraisals that reflect the realities already shaping decisions across Canada’s financial system.

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