EU Banking Supervision and Climate Regulation: Shaping Valuation Practice

By Chris Grzesik – Senior Advisor PRAXI Valuations – Global Independent Advisers

The influence of EU law on valuation practice can be traced back to the 2008 financial crisis. At the time, many commentators argued that valuers contributed to the bubble by issuing overly optimistic assessments in overheated markets.

The crisis marked the moment when the European Union did “whatever it took” to survive, transferring banking supervisory powers to EU institutions and the European Central Bank (ECB). Weak real estate collateral was identified as the single most systemic cause of bank failure, initially triggered in the U.S. From then on, real estate became central to the stability of financial markets, and reliable, independent valuation emerged as a top EU policy priority. This shift was codified in the Capital Requirements Regulation (2013), the Mortgage Credit Directive (2014), and the ECB’s Asset Quality Review Manual (2014).

Since then, real estate valuation has become a cornerstone of European integration—both for financial stability and for decarbonising the building stock. Two legislative programmes drive this transformation: the Banking Package and the European Green Deal.

Shift From Market Value to Property Value

A central element of the Banking Package is the revised Capital Requirements Regulation, which places valuation at the heart of its mission to safeguard the financial system by ensuring adequate bank capital and reducing systemic risks. In a major shift for the profession, “market value” no longer reigns supreme.

It is now complemented by the concept of “property value,” defined through prudently conservative criteria:

• excluding expectations of future price increases;
• adjusting for the possibility that current market value may be unsustainable over the loan’s lifespan.

In other words, EU authorities now regard stand-alone market value as insufficient. Instead of relying on a “spot value” at a single date, they seek valuations that anticipate and mitigate future risks.

European Green Deal: Decarbonisation as a Valuation Driver

The European Green Deal represents the EU’s most ambitious legislative package since the completion of the Single Market. Its goal, enshrined in the European Climate Law, is carbon neutrality by 2050 and a 55% reduction in emissions by 2030 compared with 1990 levels. Achieving this requires transformation across agriculture, industry, transport, and—most critically—buildings, which account for 36% of emissions.

For buildings, the legislative framework is already in place:

• Extension of the EU Emissions Trading System to buildings;
• The Renewables Directive;
• The Energy Efficiency Directive, mandating rapid decarbonisation of public buildings;
• The Energy Performance of Buildings Directive, which requires all new buildings to be zero-emission by 2030, and mandates phased renovation of the worst-performing stock by 2030–2035, alongside mass rollout of rooftop solar.

This represents a paradigm shift. For two decades, the EU urged valuers to “factor in energy efficiency,” but the market showed little evidence that such features affected value. Only with the Green Deal’s binding requirements for building upgrades within strict deadlines did energy efficiency become a true market driver—and therefore a valuation imperative.

Under the revised Capital Requirements Regulation, banks must now report their exposure to ESG risks. Although the definitions of E, S, and G are sometimes ambiguous in real estate, the environmental (“E”) dimension is clearly paramount. For valuers, the decisive factor is regulation—typically national or local rules transposed from EU law. If legislation renders a property unsellable or unrentable in a few years, that is a critical valuation issue.

The Road Ahead

The challenge for our profession is to integrate climate considerations rigorously—without artificially creating or destroying value under political pressure.

Share article: