Building resilience remains key even in a world of net zero cynicism

Corporate sustainability has seen increasing backlash over recent years, as concerns around greenwashing from the left and centre-left have been joined by opposition to 'woke' ideology from the right, catalysed by the re-election of Donald Trump in 2024.

Many sectors have had to recalibrate their approach as a result, but few have seen the immediate impact as much as property, where designing and developing energy-efficient buildings has been a regulatory requirement and a demand from those leasing and buying finished buildings. The property sector has already had to invest heavily in new approaches to manage the entire lifecycle of buildings but the narrative that now surrounds this is changing.

Despite the ongoing heat around ESG and net zero, sustainability remains a watchword in the property sector. Some reports suggest that corporate and institutional enthusiasm for sustainability is converging around a more pragmatic, risk-focused approach rather than softening altogether.

 What was referred to as ‘ESG’ has been reframed to ‘sustainability’, and now ‘resilience’, to accommodate both for the backlash and the increasing corporate focus on risk-mitigation. 

This is positive. By linking environmentally, socially, and financially sustainable practices more closely to concrete measurements and performance, we enhance the reputational - and consequently, operational - resilience of such strategies in the process.

This development is particularly pertinent for real estate, where the link between financial performance and sustainability is obvious. More energy efficient buildings have been consistently shown to command higher rents and more sustained capital growth than their less green equivalents, for example.

Institutional investors such as pension funds and insurers are a key source of funding for the asset class, and require stable, long-term income streams to satisfy their liabilities. Where steady income could previously be accrued from bonds, ongoing volatility in the bond markets has prompted these investors to sharpen their focus on real estate strategies that place a strong emphasis on income resilience. This comes amidst a wider shift, where many institutional investors are increasingly looking towards alternative asset classes such as real estate, infrastructure, and private equity to protect against inflation and diversify portfolios.

In addition to fiduciary responsibilities, major asset owners may also be attracted to real estate’s ability to generate impact and, in turn, demonstrate their social licence to operate - an increasingly referenced obligation for assets to operate in a social and equitable manner, in an era where institutional and corporate distrust is on the rise. As places where we all live, work, and play, buildings carry inherent and tangible community impact. The environmental uplift that can be delivered through sustainable real estate investment is clear to see, with commercial and residential buildings being responsible for roughly 40% of global greenhouse emissions. 

Nevertheless, the current reputational landscape has increased the requirement to wear different hats when speaking to different audiences. While pension funds in the UK and Europe have outwardly expressed their support for sustainable approaches to investment, some groups in the US have done the opposite, arguing that such strategies can be detrimental to returns. Nevertheless, overarching communications strategies - and the corporate practices which underpin them - will benefit from making a clear link between sustainability and financial performance.  

Recent events, such as the war in the Gulf to climate-driven disruption, market volatility, and advances in artificial intelligence have served to reinforce the importance of carrying out sustainable investment practices. Real estate capital managers that embed climate-risk mitigation into their portfolios, use appropriate levels of leverage, and invest in assets that will be resilient to the deflationary effects of technological innovation are those best placed to capture the growing institutional interest in alternative asset classes.

To do so, firms must also outwardly demonstrate how they invest sustainability and why it’s important. Instead of retreating from the topic altogether, companies in the space should reframe sustainability as being a core component of financial resilience and risk management for their overarching communication strategies, while tailoring tone and emphasis for more targeted audience engagements.