Europe’s residential investment sector needs to wake up to the financial urgency of decarbonising the continent’s housing stock. Otherwise, it risks the costs of carbon emissions reduction rising far higher in the future.

That was the warning from Stockholm-based Catella Residential Investment Management Managing Director Xavier Jongen at MIPIM last week.

Speaking to Bisnow, he said he was concerned that the economic challenges related to persistently high interest rates, inflation and global supply chain issues have led many investors to “kick the can down the road” in terms of the carbon emissions picture. But in the longer term, that means resolving the issue will cost the industry far more.

“Residential is a key piece of the puzzle, and investors globally need to prioritise decarbonising their portfolios because the sector is responsible for around 26% of all emissions,” he said. “What we need to do is work out how to balance decarbonisation while maintaining acceptable costs for occupiers and continuing economic growth.”

Catella has published a special report arguing for the need to focus on mitigation to achieve decabonisation.

“The good thing is that we can do something about this, and many of the actions we can take are practical and cost-effective,” Jongen said.

“Mitigation is crucial because as we substitute old technologies such as gas heating with more sustainable options such as heat pumps, we get a positive multiplier effect, and the simple fact is that adaptation will never be cheaper than it is today. If we leave things longer, the costs will be higher, and it is long-term investors and pension funds that will ultimately pay the price.”

He said that for too long environmental, social and corporate governance in the residential sector had been closely tied to ethical decision-making, but that in fact, it was far more of a financial imperative, with a clear long-term return on investment for those who recognised the need to set annual carbon emissions reduction targets.

“My concern is that progress is actually slowing at the moment, and we must get the industry to understand that it needs to act now,” he said.