Much of the sustainability discussion in finance has centered around reporting requirements like CSRD. But CRR3 is where the real impact lies - reshaping how banks assess and price risk in real estate. In this article, we break down what this means for capital adequacy, financing, and investment strategies.

What is CRR3?

CRR3, formally known as Regulation (EU) 2024/1623, was adopted in the EU on May 31, 2024. This regulation introduces significant updates to the EU’s capital requirements framework, including:

• A new standardized approach to credit risk, which lowers capital requirements for mortgages with low loan-to-value ratios. This will primarily benefit smaller banks.
• Adjustments to market risk requirements (FRTB), which have been postponed beyond the initial CRR3 implementation date.

The regulation is applicable across the EU from January 1, 2025, with Norway following shortly after.

Implementation in Norway

The decision to integrate CRR3 into the EEA Agreement was made by the EEA Joint Committee on December 6, 2024. However, due to constitutional reservations from Liechtenstein, its enforcement was delayed. With this reservation now lifted, CRR3 will officially take effect in Norway on April 1, 2025.

To ensure a smooth transition, the Ministry of Finance introduced an amendment to the CRR/CRD regulation on December 6, 2024. While this amendment has been in place, it had not yet been enforced pending the finalization of the EEA implementation. Now, with the legal framework settled, the new requirements will be fully enacted in April 2025.

New ESG and Sustainability Reporting Requirements

One of the key additions in CRR3 is the enhanced requirement for financial institutions to report their exposure to ESG risks and cryptocurrency. Banks must now provide detailed information on:

• Existing and new exposures to fossil fuel-related businesses.
• Physical and transition climate risks associated with their portfolios.
• Aggregate data on real estate-backed exposures and associated losses in national property markets.

Increased Focus on Sustainability Risks

Financial institutions will also need to adopt robust governance structures and internal processes to manage sustainability risks effectively. This includes:

• Systematic identification, measurement, and mitigation of ESG risks.
• Alignment of portfolios with EU climate neutrality goals for 2050.
• Conducting scenario analyses and stress testing to assess financial resilience.
• Developing transition plans with measurable sustainability targets.

Regulatory Expectations Moving Forward

The Norwegian Financial Supervisory Authority (Finanstilsynet) will integrate sustainability risk assessments into supervisory reviews (SREP). Authorities may require institutions to adjust business strategies or take further action to mitigate climate-related risks. If a bank fails to meet these requirements, Finanstilsynet may impose additional capital requirements, demand adjustments in business strategies, or require the implementation of more comprehensive risk management frameworks.

How CRR3 Will Reshape Real Estate Financing

Here are three scenarios and trends the implementation of CRR3 may accelerate:

Scenario 1: Lending Preferences Shift

Banks may favor energy-efficient properties with lower climate risks, making it harder to finance buildings with poor ESG performance. This could accelerate the push for green renovations.

Scenario 2: Higher Costs for High-Risk Properties

Stricter capital requirements for climate-exposed assets could reduce valuations and liquidity, prompting a repricing of risk in commercial real estate.

Scenario 3: ESG Tied to Capital Buffers

Banks may face higher capital requirements for portfolios with carbon-intensive assets, pushing real estate investors to prioritize sustainability in financing and asset management.

What This Means for Norwegian Banks

With the implementation of CRR3, Norwegian banks—especially smaller institutions—could see adjusted capital requirements, benefiting mortgage lending. However, they must also enhance their ESG risk reporting and sustainability risk management strategies to comply with the new regulations.

As the financial sector moves toward greater sustainability and resilience, staying ahead of these regulatory shifts will be critical for long-term stability and compliance.

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Want to understand how these regulations will impact financing conditions for your properties? Telescope can help you assess risk exposure and align with emerging capital requirements. Let’s talk!