Green Finance in the UK commercial property market - The opportunities ahead

In 2024, the UK green finance market reached £134.47 billion, with projections indicating growth to £283.04 billion by 2033. This highlights the nation's commitment to sustainability. Green finance, including green bonds, mortgages, and loans, is becoming integral to the UK commercial property market, offering substantial financial and reputational benefits to businesses.

What is Green Finance?

Green finance in the UK commercial property market supports environmentally sustainable projects and improvements in commercial buildings. This includes green bonds, mortgages, and loans, which fund initiatives with positive environmental impacts. The sector's growth is driven by the increasing issuance of green bonds, the integration of ESG criteria into investment strategies, and the rising demand for sustainable finance solutions.

Benefits of Green Finance

Green finance offers several benefits, including:

• Access to Capital: Provides businesses with funds earmarked for sustainability projects, enabling investments in energy-efficient technologies and infrastructure improvements.
• Enhanced Reputation: Enhances a business's corporate social responsibility profile and appeals to consumers who prioritise sustainability.
• Regulatory Compliance: Helps businesses meet strict environmental standards and regulatory requirements, positioning them favourably with authorities and stakeholders.
• Attracting ESG Investors: Attracts ESG-conscious investors, expanding the investor base and appealing to ethically driven capital.
• Improved Asset Value: Properties financed through green finance often enjoy higher demand and retain value better than conventional properties due to their sustainability credentials.

With these benefits in mind, it's important to consider the current trends shaping the green finance landscape and how they influence business strategies.

Current Trends

The UK government's ambitious goal to reach net zero carbon emissions by 2050, supported by initiatives like the Green Finance Strategy and the UK Infrastructure Bank, is driving the growth of green finance. Investors are increasingly integrating ESG criteria into their strategies, and consumer preferences for environmentally responsible businesses continue to rise. As a result, businesses are adopting green finance to enhance their environmental credentials and meet stakeholder expectations.

According to our recent research Office Occupiers Survey 2025 - Office Occupiers Report 2025 35% of businesses surveyed have already obtained green financing for their occupation costs, with a further 43% considering doing so in future. A similar trend is visible for businesses opting for green financing over standard debt financing, highlighting that UK businesses are seeking alternative methods to traditional financing to meet their ESG initiatives. In particular, our research revealed that office occupiers consider building performance and energy efficiency to be the most important environmental criteria (42%) when choosing office space and will pay a higher rent (47%) for environmentally friendly office space, as long as this leads to a reduction in service charge or energy bills.

Given these trends, businesses have a variety of green finance options available to them.

Options Available 

Lenders play a crucial role in the green finance landscape by offering products and preferential terms. These products finance projects that contribute to decarbonisation, such as renewable energy installations and sustainable infrastructure developments:

• Green Mortgages: Used for purchasing, building, or redeveloping properties to meet environmental targets. They offer benefits like reduced operational costs and may require a minimum energy performance certificate rating to qualify.
• Green Loans: Cover a wider range of projects, including sustainability upgrades like solar panel installations. They tend to have more complex terms than green mortgages, focusing on the property’s performance against globally recognised sustainability standards.
• Green Bonds: Finance or refinance environmentally friendly projects. In 2024, the green bond market in the UK outperformed the conventional UK bond market by almost 2%. Green bonds provide preferential lending terms, and investors are increasingly willing to accept slightly lower returns in exchange for environmental benefits, known as the ‘greenium’.

While these options provide significant opportunities, businesses must also navigate several challenges to effectively implement green finance solutions.

Challenges

Green finance in the UK commercial property market faces several challenges:

• High Upfront Costs: Significant initial investments for green projects can deter property owners and developers. These costs include purchasing energy-efficient technologies, retrofitting buildings, and implementing sustainable practices.
• Regulatory Uncertainty: The evolving landscape of regulations and policies creates uncertainty for investors and developers, making it challenging to plan and commit to long-term projects. Changes in government policies, tax incentives, and environmental standards can impact the feasibility of green finance solutions.
• Limited Awareness and Expertise: There is still a lack of awareness and expertise among property owners, developers, and financial institutions regarding green finance options. Many may not fully understand the benefits, processes, or available products, hindering the adoption of green finance solutions.
• Measurement and Verification: Tracking the environmental impact of green projects is complex and resource-intensive, involving energy savings, carbon reductions, and other metrics. Reliable data and standardised methods are essential, but inconsistent practices can be challenging.

What’s Next?

Despite these challenges, green finance in the UK commercial property market looks very promising, driven by technological advancements, stricter government policies, and increasing demand for ESG investments. Global collaboration on climate change and improved risk management will further boost its adoption. This presents substantial opportunities for businesses to enhance their environmental credentials, reduce costs, and attract investment and consumer goodwill. By utilising green finance options, businesses can contribute to a sustainable future while enjoying financial and reputational benefits. 

Ayesha Hasan, Partner & Head of London Real Estate Transactions and REF and Paddy Sturman, Partner & National Head of Banking and Finance at Irwin Mitchell.

This article first appeared in Estates Gazette