Climate risks and stranded assets: Protecting your property portfolio

What are stranded assets?

A stranded asset can be a building, piece of land or piece of related infrastructure that once had value   but no longer does because of external societal factors, such as regulatory changes or environmental risks. Climate risks are an ever-present societal factor that can render assets less valuable or even unusable.  

Bringing these discussions into the boardroom and making informed decisions early can help mitigate risks, avoid disruption, and reduce potential cost exposure.

Climate change is the large-scale, long-term shift in global and regional weather patterns and average temperatures. In the UK, this can lead to several risks for property owners, including:

1. Flooding: Increased precipitation can cause surface flooding and river overspill, which may physically impact a building or land.
2. Ground instability: Shrinking and swelling of clay soils may lead to subsidence.
3. Heat stress: Rising temperatures can affect how people live and work in the built environment.
4. Coastal erosion: Properties near the coast face threats from storms, high tides, and rising sea levels.

In addition to physical risks, regulatory changes may increase running costs or require costly refurbishments to meet compliance standards—further reducing asset value.

What are the risks of inaction?  

Failing to address climate-related risks can significantly impact your ability to insure, sell, let, develop, or finance your property portfolio. Heat stress and other factors may also affect day-to-day usability, reducing marketability and long-term value.

The costs of not mitigating against climate risks can be dramatic. It is estimated in Property Week that around 50% of commercial real estate assets in London are already worth less than they were acquired for, some even worth up to half of the value acquired for. 

Values in the residential market between an energy efficient property that meets MEES standards and energy inefficient properties is an average loss of £5,000 to £9,000 (Energy Economics).

It is advisable that property owners assess their asset portfolio for any properties which may have risks associated with climate changes. Some potential mitigating steps below:

‍Taking out climate searches

Several providers offer desktop reports outlining short-, medium-, and long-term physical and transitional climate risks for properties and development sites – which may highlight long term estate managements steps to mitigate risks.  

Energy Performance Certificates (EPC)

Ensure all properties meet current EPC and future standards to avoid regulatory penalties and maintain market appeal. Implementing recommendations from the accompanying recommendation report may improve the EPC rating ahead of any regulations becoming more stringent.  

Green clauses in lease

Incorporate sustainability obligations into tenancy agreements to support decarbonisation and compliance with ESG requirements.

Climate change is having and will continue to have a profound impact on real estate. Taking action now, by assessing risks and implementing mitigation strategies, will help ensure your portfolio remains resilient, valuable, and fit for purpose.

Discover our built environment contract solutions tool, in collaboration with The Chancery Lane Project, to help those in the property industry navigate climate-aligned drafting.

And take our ESG lease health check questionnaire to learn more about how you can spot potential ESG opportunities in your commercial property portfolio.

If you have any questions about any of the issues raised in this article, please get in touch.

To read the other articles in our ESG in the boardroom series, covering topics including supply chains, reporting and regulation, and corporate governance, visit our ESG in the boardroom In Focus page.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.