Climate risk is now central to financing

Climate resilience is now central to how real estate value is defined, financed, and protected. For building owners and developers, climate risk is now a core financial consideration affecting access to capital, insurability, and long-term asset value.

Across the financial and real estate sectors, climate resiliency is being viewed as a measurable risk being priced into today’s lending, underwriting, and investment decisions. This shift is being driven by regulators, who are embedding climate risk into financial oversight and setting clearer expectations for how lenders and insurers must assess and respond to physical climate exposures.

Thomas Mueller, President and CEO of CAGBC, said that “investment and financing decisions are increasingly viewed through a climate-risk lens,” adding that “value is being defined and liquidity repriced as investors, lenders, and insurers demand clear evidence of physical risk exposure.”

Capital is changing

As lenders respond to growing regulatory expectations, climate risk is being embedded directly into financing decisions. Financial institutions are now expected to demonstrate how they assess and manage physical climate risk as part of core risk governance, disclosure, and capital planning requirements.

This is translated into more detailed scrutiny at the asset level. Banks are increasingly assessing exposure to hazards such as flooding, extreme heat, and severe weather, alongside the financial implications of those risks. Scenario analysis, stress testing, and climate-related disclosures are becoming standard practice.

As a result, lending is increasingly shaped by how clearly an asset risk profile can be identified, measured, and managed. Buildings with unaddressed vulnerabilities are facing higher borrowing costs or constrained access to capital, while resilient assets are being positioned as lower-risk investments.

Climate resiliency and sustainable financing were front and center at the CAGBC Green Building Business Summit earlier this year.

Speaking at the event, Colin Guldimann, Senior Director, Sustainable Finance at Royal Bank of Canada (RBC), pointed to risk as the defining factor, noting that “what drives pricing for lenders is risk.”

Fellow panelist Julian Smith, Senior Vice President, Climate and Decarbonization at JLL, reinforced this perspective, stating that the “risk-return profile of assets will be what drives decision-making.”

These themes carry forward into CAGBC’s conference Building Lasting Change™ (BLC) taking place June 17–19 in Montreal. The conference’s Business stream will explore how evolving capital-market expectations are shaping decisions across Canada’s building sector, with sessions examining sustainable finance trends, climate risk, portfolio resilience, and performance expectations.

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Insurance is tightening

Insurance markets are responding to the same underlying risk signals, with a sharper focus on insurability at the property level. As climate-related events increase frequency and severity, insurers are updating models to reflect current and projected exposure more accurately.

This is resulting in more granular underwriting, with increased scrutiny on building characteristics, mitigation measures, and historical loss patterns. Where risks are high or not adequately managed, insurers are responding through higher premiums, tighter coverage terms, or withdrawal from certain markets altogether.

“Insurance is becoming more expensive and, in some cases, harder to secure in high-risk areas. This makes resiliency strategies essential not only for maintaining coverage, but also for preserving financing options” says Mueller.

As a result, insurability itself is becoming less certain, and more closely tied to demonstrable resilience.

Another panelist at the event, Angela Adduci, Senior Advisor – BMO Climate Institute, emphasizes that “there is no lending without insurance, and when insurance becomes less available or higher-priced, the costs are carried by lenders or borrowers. We are all better off when an asset is climate resilient.”

Understanding climate risks and how to proactively manage them is now a business imperative for real estate investment and management

LEED v5, a framework to assess and act on climate risk

LEED v5 provides a structured framework that owners and developers can use to consistently integrate climate resilience into decision-making. It embeds climate risk assessment requirements alongside resilience-focused credits, assisting project teams in taking a more systematic approach to resilience planning.

The framework helps project teams evaluate both current and future climate conditions using credible data, identify exposure to hazards such as flooding, extreme heat, wildfire, and severe weather, and translate that analysis into early planning and design through site planning, building design, material selection, and operational considerations.

Deepen your understanding of how to apply LEED v5 with climate resilience strategies through CAGBC’s on-demand LEED v5 Webinar Engagement Series, including Building Resilience with LEED v5, which explores how to embed resilience into broader business, compliance, and risk management strategies.

Get guidance on how to address climate-related risks at the portfolio level

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