A clearer idea of the financial benefits of sustainability, more consistent standards, and support for clean grids would help soften risks in the transition to decarbonized real estate, panellists at the 2025 Toronto Real Estate Forum said.

At a session Dec. 3 in the Metro Toronto Convention Centre, Real Property Association of Canada (REALPAC) CEO Michael Brooks said the organization’s members remain committed to sustainability despite headwinds from the political climate.

“The academics are pretty clear: green buildings are worth more, they lease up quicker for higher rents and they avoid obsolescence.”

But fellow panellist Kathleen Beaumont, the Investment Management Corporation of Ontario (IMCO)’s principal of sustainable investing, said the sustainability industry today is exposed to “systemic challenges” that lead to “mispricing climate risk” and “greenwashing risks.”

Her colleagues on the panel pitched remedies for these issues. Real estate services company JLL, for example, is working to precisely understand how sustainability affects property valuations, its Canadian head of value and risk advisory Dave Black said.

Clean electricity across the country would help pave a more smooth path toward decarbonization for Canada’s real estate sector, Brooks said.

Sustainability in property appraisals

IMCO assesses risks and opportunities “as core to our underwriting process” when making decarbonization investments, Beaumont said. But IMCO “can’t do this in isolation,” she noted, relying on its operational partners and the valuation community.

The public-sector asset management firm advocates for a systematic recognition of sustainability in valuation methodologies, Beaumont said, reflected not just as an expense but as a risk mitigator.

Panel moderator Thomas Mueller, the president and CEO of the Canada Green Building Council, inquired how often JLL is asked to have sustainability reflected when appraising investments.

Black replied it depends on the client. JLL is not feeling much pressure from its private buyers, but institutional clients such as pension funds and REITs with environmental goals are very interested.

“How is it influencing value?” is a question JLL is often asked by the latter group about sustainable investments, Black said.

JLL is aiming to better understand how sustainability influences property values by asking more questions about green features and determining “what this sustainability investment means from a financial outcome perspective.”

More data, consistent standards in demand

Next, Mueller asked the panellists what would strengthen confidence that a sustainable investment will produce returns.

Beaumont identified problems first: inconsistent data methodologies and an excess of green building standards. The two issues lead to mispriced climate and greenwashing risks, confusion around decision-useful metrics for investors and higher sustainability reporting costs, she said.

Mueller noted Beaumont’s concern is not new, as it has been debated for years whether there are too many Canadian green building standards.

Investors and valuations experts, Beaumont said, need unified and consistent risk metrics based on investor-oriented standards.

Lillian Tummonds, the senior vice-president of retail operations at Cadillac Fairview, agreed with Beaumont on the number of green building standards. “There is a lot of certifications out there; we have to pick some horses and ride them,” she said.

When asked by Mueller how appraisal firms can effectively act on green valuations, Black said the industry is aiming to answer what the certifications mean from a value perspective; if a certification can be superior to its peers; and if the various standards should be treated differently.

There is also the “softer idea” of training appraisers on technical matters such as whether a property will conform to upcoming carbon-emission regulations, Black said.

The appraisal industry also needs more reliable, easily understandable data from its clients, he added. Clients will have to be more open with their information, Black said, noting some companies fear opening their books could reveal environmental risks harmful to the value of their portfolio.

Cleaner grids can cover major decarbonization gap

There is a split between REALPAC’s members when it comes to sustainability ambitions, Brooks said. A handful are world-leading, particularly Canadian pension funds with sustainability initiatives. But most of Canada’s real estate players have not pursued such green targets, he said, estimating 90 per cent of buildings in the country do not have sustainability designations.

“The main issue is carbon,” Brooks said. Quebec, for example, has an electricity grid powered almost entirely by renewable energy, which makes building decarbonization easy. But Saskatchewan’s electricity is mostly generated by natural gas and coal, impeding such an effort.

While REALPAC’s members are far more fond of carrots over sticks, Brooks said it will come to a point where a stick will be needed to move the majority of Canada’s real estate market toward sustainability.

The easiest way to achieve this will be through clean grids across Canada, he said. The Canadian government has set a goal for a net-zero electricity system by 2050. Such a plan will be easier to achieve than dealing with hundreds of thousands of owners of smaller buildings, he added.