ESG matters for investment performance

A chain of interlinked forces is transforming the real estate landscape. The growing economic impact of climate change, combined with regulatory pressure and rising energy costs, is accelerating the transition toward more efficient and resilient assets. This shift is now visible across the entire value chain — reshaping both investor and lender behaviour.

Three key drivers

1. Rising economic cost of climate change

The economic cost of climate change is already material and increasing. For real estate, that means greater physical risk from flooding, fires, and extreme temperatures.¹

€43bn

Direct climate-related losses in Europe in 2025 (0.2% of GDP)

€126bn

Forecasted annual losses by 2029 (0.7% of GDP)

2. Regulation

Rising climate-related costs are driving tighter regulation across Europe. For real estate, this increases requirements for energy performance and renovation of existing buildings.²

-90%

EU emissions reduction target by 2040

16% / 26%

Required building renovations by 2030 / 2033 under EU's EPBD

40% / 36%

Share of EU energy use and CO₂ emissions from buildings

3. Energy prices

Energy has become a structural cost driver. The period of low and stable prices is over, with rising and more volatile energy costs directly affecting operating expenses and real estate income.³

+6.2%

Annual real increase in EU gas prices 2020–2025 (vs. 0% previous ten-year period)

+1.2%

Annual real increase in Swedish district heating 2020-2025 (vs. -0.3% previous ten-year period)

Impact on capital allocation

These drivers are now directly influencing capital allocation across the real estate market.⁴ Sustainability is increasingly a requirement for investment decisions, financing, and leasing.

Preferences of real estate allocators

58%

Share of global real estate private markets AUM with climate targets

98%

Share of European real estate
AUM with climate targets

€857bn

Real estate AUM with climate targets

Beyond institutional investors, tenants increasingly prefer energy-efficient assets, while banks require energy improvement plans for lower-rated buildings. Sustainability now directly affects both leasing attractiveness and access to financing.

ESG goes beyond climate

The business case extends beyond carbon and energy.

Tenant attraction and wellbeing, business ethics, and community initiatives support occupancy, retention and stable income.
Strong governance, compliance, and transparency underpin licence to operate.

Together, these factors position Slättö as a trusted partner for investors, lenders and municipalities, while supporting long-term value creation and attracting top industry talent.

Integrated in Slättö's investment management

Against this backdrop of tighter regulation, higher expectations from institutional capital, and continued focus on asset quality, we integrate sustainability into Slättö’s investment activities as part of core business processes.

There is a clear financial rationale for integrating environment, social and governance issues deeply into real estate investment. It affects net operating income, capital value and risk. Slättö’s materiality work therefore links ESG directly to these financial aspects.

Investment strategy

Slättö’s investment strategy is articulated in our House View.
The House View also includes an ESG section, with insights on market sentiment on sustainability and future legislation impacting real estate.
For example, we track market evidence suggesting that assets with stronger energy performance have better liquidity and potentially trade at tighter yields in the Nordic market.

Before investments

Before new investments, ESG due diligence is integrated into underwriting.
The due diligence rests on Slättö’s materiality analysis.
It covers ESG aspects such as energy performance, physical climate risks, embodied carbon and pollution risk.
Key findings and mitigation strategies are summarized in the Investment Committee materials.
This ensures actionable asset-level sustainability business plans are developed from acquisition onward.

Ownership

During ownership, Slättö implements the asset plans set at transaction.
For example, in standing assets, the focus lies on energy improvements and tenant attractiveness.
We review ESG performance at asset and fund level at least annually, using KPIs based on the EU Taxonomy.
Reporting has also been automated through Slättö’s business intelligence system, linking ESG to financial data.

Exit

Exit is addressed early. Already at the investment stage, Slättö identifies ESG actions in the business plan to complete before sale.
For example, in project development, Slättö requires EU Taxonomy alignment, strong environmental certification and embodied carbon limits to capture prime-standard premium at exit.

Policy and reporting

Slättö has a well-defined ESG policy framework and investor reporting.

Governance and implementation:

Responsible Investment Policy aligned with UNPRI
Sustainability Taskforce led by Head of ESG
The work is supported by internal specialists and external advisors

ESG in investments:

ESG due diligence integrated in underwriting
Covers energy performance, Taxonomy alignment, embodied carbon and contractor conduct, among other aspects
Ensures ESG is embedded in asset business plans

Policy framework:

Responsible Investment Policy
Construction Supplier Code of Conduct
Sustainability standards for project development and asset management
SBTi-validated 2030 climate targets (net zero 2040 ambition)

Reporting and disclosures:

EU SFDR and Taxonomy
UN PRI
Scope 1-3 GHG emissions reporting
Science-based targets and CRREM
GRESB

More information including fund-level SFDR reporting is available on the investor portal.

Sources:

¹ Research from University of Mannheim and ECB, 2025: "Dry-roasted NUTS: early estimates of the regional impact of 2025 extreme weather".

²European Commission.

³ Slättö analysis of real energy price growth in Europe. Sources: Eurostat, UK Government, Statistics Finland, Denmark Forsyningstilsynet, Sweden Energiföretagen, European Commission Market Observatory for Energy.

⁴ Slättö analysis of published climate targets of the world's top 100 real estate private markets allocators (the PERE top 100 list). Specific climate targets are numerical, time-bound net zero or emission reduction targets based on annual reports or other public documents from investors.