Financing the Future: How Financial Institutions Can Lead in Climate-Aligned Real Estate
For more than two decades, researchers in Canada and internationally have been reaching the same conclusion: buildings that perform better environmentally also perform better financially.
Launched in 2025, the Banking on Buildings Program [link to Banking on Buildings Project page] is a national collaboration to accelerate low-carbon, climate-resilient real estate through the financial sector. As part of the program, Affine Climate Solutions and Recursive Advisors conducted a meta-analysis of more than 100 peer-reviewed studies published between 2002 and 2024 to answer a simple but powerful question: What financial and risk-based evidence supports differentiated lending practices for climate-aligned buildings in Canada?
What the Evidence Shows
The findings are remarkably consistent. Across the globe and residential and commercial real estate markets, green and energy-efficient buildings outperform conventional buildings on key financial metrics – rents, occupancy, operating costs, and asset value. But the most important insight is often misunderstood. The advantage is not always a “green premium” in the form of higher rents. More often, it is the avoidance of erosion in net operating income (NOI). In plain terms, climate-aligned buildings hold their value while others fall behind.
Why this Matters for Lenders
Stable NOI translates into lower default risk and better value retention. Research from the U.S. and Europe shows that energy efficient and certified green buildings experience significantly lower operating costs, default rates and, in some cases, qualify for reduced interest rates.
The operational reasons are straightforward. Green buildings lease faster, retain tenants longer, require fewer rent concessions, and deliver higher tenant satisfaction. They also have lower utility costs and are better positioned to withstand climate stressors such as heat, flooding, and energy price volatility. These factors combine to create more predictable cash flows – exactly what lenders seek when pricing risk.
From Green to Climate-Aligned
Looking ahead, the next frontier goes beyond traditional “green” attributes. Climate-aligned buildings – those that are at the forefront of net zero transition pathways - represent the evolution of sustainable real estate. Recognizing this shift offers financial institutions a strategic opportunity: to strengthen risk models, improve loan performance, and build lower-risk portfolios while gaining competitive advantage as early adopters. As transition risk accelerates, buildings that lag behind climate targets face increasing exposure to obsolescence, retrofit costs, and value discounts. Historically, non-green buildings have faced value discounts of 7 to 10%, with even steeper penalties emerging in markets with stronger energy regulation.
There is also a clear precedent for action. In the U.S., Fannie Mae (the Federal National Mortgage Association), a government-sponsored housing finance agency, has shown how preferential loan terms for sustainable buildings can improve affordability while strengthening portfolio performance. Over the past decade, its green financing programs have supported more than one million residential units, justified higher loan-to-value ratios, reduced default risk, and unlocked the largest issuance of green mortgage-backed securities on record.
For Canadian financial institutions, these trends underscore a clear reality: sustainability is no longer optional; it is a core driver of asset value and loan performance. By embedding climate-aligned attributes into underwriting and portfolio strategies, institutions can reduce risk while positioning themselves to capture emerging opportunities. Taken together, the evidence supports a strong business case for expanding climate-aligned lending practices across the financial sector.
