When regulation steps back, the market steps forward: private sector leadership in sustainable real estate
Chris Pyke, chief innovation officer at GRESB argues that while US regulators are pivoting away from considering climate change as financial risks, private investors emerge as the driving force pushing for decarbonisation
Assessing the value of the built environment goes beyond location, asset type, and operating revenue. Investors and fund managers recognise the potential benefits of including a building’s energy efficiency, water usage, and risk of extreme weather in their financial risk strategy. As these factors gain importance, data has become the bridge between sustainability performance and financial strategy, with investors and fund managers increasingly relying on third-party validated data from global providers of sustainability benchmarks and performance frameworks to inform decision-making. With quality data comes transparency in performance, which can unlock a variety of benefits, including access to capital, reduced risk of stranded assets, and enhanced operational efficiency. As regulatory frameworks continue to evolve and remain fragmented across jurisdictions, climate disclosures for financial institutions with real estate investments will continue to play a role in ensuring sound investment strategies.
The changing investment landscape
In 2024, there were 27 individual weather and climate disasters with at least $1bn in damages, forcing the investment landscape to evolve as climate change introduced new financial pressures for commercial real estate. The stakes are particularly high as asset value is intrinsically tied to physical properties. Consider the threat of river floods and flash floods. Data from the 2024 GRESB Real Estate Benchmark found that river and flash floods remained the most frequently reported acute hazards globally, with river floods rising from 64% to 67% and flash floods from 54% to 57% between 2023 and 2024. These hazards were closely linked to increased financial strain, as 63% of companies reported higher capital costs (up from 58%), and 54% experienced increased operating costs (up from 50%) over the same period.
Market-led action in the absence of regulation
While US regulators are pivoting away from climate change as a material financial risk, the private sector and local governments are taking the lead on climate reporting. The US Green Building Council’s LEED v5, New York City’s Local Law 97, Boston’s Building Emissions Reduction and Disclosure Ordinance (BERDO), and Denver’s “Energize Denver” are a few key state and industry-led initiatives that are maintaining momentum on climate action and risk management amidst federal regulatory uncertainty.
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Regardless of federal requirements for climate disclosures, sustainability and decarbonisation have evolved into strategic value drivers, providing verifiable ROI through cost savings, increased asset value, and long-term resilience while meeting investor and tenant demand for low-carbon, high-performance buildings. As real estate investors look for data on the resiliency, efficiency, and sustainability of their real estate investments, asset managers will need sound reporting processes in place to engage with investors and to meet emerging state-level requirements.
The role of data in identifying risks and opportunities
Data is essential to the built environment today because it helps investors and fund managers determine an asset's performance, cost of operation, and emissions; however, not every piece of data is the same. It can raise property values, but missing or incorrect data can also alter an investment strategy by reducing property value or miscalculating risk. As extreme weather events and environmental pressures become more frequent, real estate stakeholders increasingly rely on performance metrics like energy efficiency, water conservation, and emissions to evaluate assets’ risks and opportunities. This level of granular data supports smart investment decisions, the ability to spot market trends, and the assessment of risks and opportunities.
Conclusion
By prioritising asset-level data, investors and fund managers are equipped to make smarter and sustainably conscious investment decisions. It unlocks long-term financial and environmental benefits, enabling investors to assess risk, improve performance, and build resilience in the face of increasing climate volatility. In the absence of uniform regulation, private sector leadership through industry-led frameworks and non-governmental standards or state-led requirements will continue to drive some climate reporting initiatives, but true progress will be made by the asset managers and investors themselves who prioritize climate reporting initiatives that impact the bottom line. As uncertainty in public policy persists, the value of voluntary action and transparent, data-driven strategies has never been clearer.
About Dr. Chris Pyke:
Chris Pyke is an environmental scientist and Chief Innovation Officer for GRESB. Dr. Pyke has cross-cutting responsibility for innovation, communications, and supervision of the GRESB Foundation. Dr. Pyke previously served as Senior Vice President for Arc Skoru (part of the USGBC family of organisations), Chief Strategy Officer for Aclima, and a research scientist for the U.S. Environmental Protection Agency. Dr. Pyke is on the faculty of the Urban and Regional Planning Program at Georgetown University. He holds a Ph.D. and M.A. from the University of California, Santa Barbara.
