Climate change risk

Real estate is a critical lever for boards looking to deliver on their climate commitments. Decarbonising real estate portfolios isn’t just about compliance, it’s a strategic opportunity to futureproof assets.

But the impacts of climate change aren’t a distant risk. They are already reshaping how, where and whether properties can be used. It is increasingly important for conversations about climate change to come into the boardroom and to form part of commercial decisions. Embedding it into decision-making now could help avoid disruption and cost later. Ignoring it now could mean falling behind – operationally, reputationally and financially.

Climate risks aren’t just about physical risks such as flooding or subsidence, but also include the impacts of issues including evolving regulation and market changes, as well as changes to policy and legislation. Together, these may affect your ability to insure, sell, let, develop or finance your estate as well as impacting the value or marketability. Risks such as heat stress may also affect your day-to-day use of a property.

For businesses that own or manage real estate, now is the time to align your estate management strategy with your ESG goals and to understand how the changing climate may affect your estate.

5 steps to assess climate risk across your portfolio include:

1. Audit your estate for climate exposure

Review each property to determine the possible effects that a changing climate may have on each property. Once you understand the potential risks a property may be subject to, mitigation can be incorporated as part of your ongoing estate management.

2. Review your leases with ESG in mind

If you lease property, check the terms of your leases to ensure these incorporate provisions to mitigate any identified risks and allow for you to manage the property in line with your business's wider sustainability goals. This can include things like permitting alterations for installation of solar panels and the upgrading of plant and machinery to more sustainable options. You can use our ESG Lease Health Check for an overview of where your leases stand on ESG.

3. Check your EPC rating and plan ahead

Check the EPC rating of your property and its accompanying recommendations report to check if any improvements can be made to increase your EPC rating. In England and Wales, a landlord is currently prohibited from letting (or continuing to let) a property with an EPC rating of below E, unless an exemption applies and has been registered. However, the minimum standards (MEES) are expected to become incrementally stricter over time, with the minimum EPC rating needed to let property likely to continue to increase in the future. Required works to future-proof your rating should be factored into the management plan for the property if likely to be required over the short or long term.

4. Embed climate risk into acquisitions

Ensure that your solicitor considers climate change risks from the start of the purchase process in their reporting on the title. Make use of the variety of climate change risk searches on the market to review the future risks to factor into to your management plan. TLT has worked with The Chancery Lane Project to update sample drafting on climate change risks for use in title reports. You can request that your solicitor includes this reporting as part of the due diligence process. If leasing a property, ensure the heads of terms include green lease clauses that support your ESG goals and future-proof the asset for potential changes in legislation such as MEES changes.

5. Leverage your professional network

Take advantage of the sector and market knowledge of your wider team of professional advisors.

• Your insurance broker can consider the terms on which insurance is currently available to cover potential losses associated with climate change and how availability of cover may change in the future.
• Your building surveyor, structural engineer, flood or climate risk consultant can evaluate risks and provide recommendations on resilience, readiness and adaptation measures.
• Your valuer can advise on if any risks are likely to impact the current or future market value of the Property.

The effects of climate change are likely to have a significant impact on real estate. Taking action early, by considering and addressing risks, can help ensure your estate remains resilient, valuable and fit for purpose.

At TLT we advise on green, and wider ESG, lease drafting, helping you decarbonise your real estate and stay ahead of regulatory and market change.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.