Incoming mandatory climate-related financial disclosure requirements are reshaping industry expectations across the board in Australia. While many have long recognised sustainability as essential, the incoming regulations send a clear message: for those still treating it as a ‘nice-to-have’, that time is over, particularly in the commercial real estate sector.

ESG has evolved from a reputational consideration to a regulatory obligation. And although some organisations have already embedded sustainability into their risk frameworks, the new requirements make this approach mandatory, linking climate-related impacts directly to financial statements and board-level accountability.

These changes signal a recalibration in how climate risks are recognised, managed, and disclosed, with ongoing mandatory reporting expected to inform asset valuation, investor confidence, and long-term performance.

1. From marketing metric to material risk

For years, sustainability in commercial property was framed only around energy efficiency, green certifications, and tenant appeal, but the new rules, closely modelled on international standards, now elevate climate risk to a financial reporting issue.

This means climate-related risks and opportunities must now be:

• Identified and assessed in the same way as other core business risks (e.g. market, legal or liquidity risks)
• Embedded in annual financial disclosures using audit-ready data
• Addressed through scenario analysis, transition planning, and board-level oversight

The implications are substantial:

• Climate risk becomes a board responsibility, not just a sustainability function
• Insurability and insurance costs will be increasingly influenced by environmental and asset resilience and over time, this could impact resale value and ongoing operating costs
• Director liability increases, with disclosures subject to external assurance and scrutiny

For commercial real estate leaders, this requires a more structured and evidence-based approach to climate governance, integrated directly into financial decision-making. It also means moving beyond surface-level ‘storytelling’ to deliver measurable outcomes.

2. Why it’s costlier not to act

Yes, sustainability initiatives require investment, but the key question has shifted from “what will it cost to act?” to “what will it cost if we don’t?”

The new disclosure regime forces transparency around:

• Physical risks (e.g. flood, fire, heat exposure to property assets)
• Transition risks (e.g. policy shifts, carbon pricing, changing market demands)
• Financial risks (e.g. reduced asset valuation, increased CapEx/OpEx, limited access to capital)

We’re already seeing real-world consequences:

• Tighter lending criteria: Banks increasingly require sustainability-linked data before financing. Lower-performing buildings may face higher rates, or be denied funding altogether
• Investor pressure: Investors are screening for ESG information as part of the capital decision making process, as funds work towards their own net zero targets and reporting obligations
• Valuation gaps: ESG credentials are increasingly tied to premium valuations, particularly in office markets. Assets lacking them may face reduced demand and value decline.

Without a clear, credible plan, asset owners risk holding properties that become harder to lease, insure, finance or - worse - sell.

3. Reporting is just the beginning

Getting ready to report will be resource-intensive, especially in the first year, involving gathering climate-related data from multiple sources, establishing governance protocols, and potentially engaging third-party assurance providers.

But reporting isn’t the finish line.

The real test is moving from disclosure to delivery and turning identified risks into meaningful action. Regulators, investors, and tenants will be looking for:

• Authentic emissions reduction strategies
• Resilience upgrades and CapEx alignment
• Governance structures that demonstrate climate oversight at the board level

A disclosure that doesn’t drive implementation is a cost—not a risk mitigant.

4. What should CRE owners and investors do now?

Whether you're managing a $50 million asset or a national portfolio, the runway is short and the stakes are high.

Here’s how to get ahead:

• Map climate exposure across your portfolio: Understand which assets are most vulnerable to both physical and transition risks
• Build internal capability: Reporting will require new systems, skill sets, and a shift in how finance and risk functions operate
• Educate your board: Directors will be signing off on disclosures—ensure they are equipped to govern climate-related risks
• Future-proof your assets: Align CapEx strategies with energy efficiency, electrification, and resilience goals to avoid long-term devaluation

Those who act early won’t just reduce risk, they’ll be better positioned to attract capital, tenants, and insurance. We’re entering an era where climate risk is financial risk, and the rules are changing to reflect this.

Some will view these regulations as a compliance burden. But the strategic view is clear: this is an opportunity to embed resilience, protect long-term asset value, and stand out in a competitive market.

Investors and capital markets are watching. So are tenants, regulators, and insurers. The commercial real estate sector can choose to lead or be left behind.

If sustainability hasn’t been on your balance sheet until now, it’s time it was.

Disclaimers:

The postings by any individual on any blog do not necessarily represent the position of Savills, its strategies or opinions.