The pursuit of long-term wealth and meaningful impact has steered investors toward the world of physical, tangible assets that stand the test of time. Sustainable real assets are the linchpin for portfolios seeking not only financial resilience but also direct contributions to a greener, fairer planet.

In this article, we dive deep into the definitions, benefits, and real-world examples that demonstrate how these assets underpin the global transition to a low-carbon economy while aligning with societal goals.

Understanding Sustainable Real Assets

Tangible physical asset investments such as real estate, infrastructure, renewable energy projects, timberland, and water rights represent a distinct class of holdings grounded in the physical world. Unlike financial securities, these holdings derive value from the assets themselves and provide a hedge against inflation and market volatility.

Key sub-sectors within this space include:

• Utilities: solar, wind, hydro, geothermal, and waste-to-energy facilities
• Communications: fiber networks, data centers, and cell towers
• Sustainability Solutions: water treatment, industrial decarbonization, and recycling systems
• Natural Resources: timber, sustainable agriculture, and precious metals

Driving the Sustainability Agenda and the SDGs

By channeling capital into these assets, investors directly support the sustainable development goals alignment, particularly SDGs 6 through 11. Energy efficiency improvements and renewable capacity expansions tackle climate action and clean energy imperatives head-on.

Cities, which produce over 60% of global emissions and house half of the world’s population, stand to benefit enormously from sustainable real assets. These investments lay the groundwork for smart cities with resilient built environments.

Major SDG impacts include:

• No Poverty and Zero Hunger through sustainable agricultural land management
• Good Health and Well-Being via improved water and air quality
• Affordable and Clean Energy through expanded renewable generation
• Industry, Innovation, and Infrastructure via modernized transport and communications networks
• Climate Action through decarbonization projects and carbon sinks

The Financial Case and Performance Benefits

Beyond societal impact, sustainable real assets deliver lower volatility and higher returns compared to traditional equity and bond portfolios. Over the past 15 years, leading green real asset vehicles achieved approximately 10% annualized returns while exhibiting resilience during market downturns.

These benefits include inflation hedging through pass-through lease agreements, the security of regulated and contracted returns via long-term power purchase agreements and toll concessions, and improved asset valuations from energy-efficient upgrades and certification benchmarks.

Practical Steps for Investors

Investors can take actionable steps today to position portfolios and support the sustainability transition:

• Assess existing allocations to real estate and infrastructure; identify upgrade opportunities
• Engage with asset managers on ESG criteria and impact measurement frameworks
• Allocate capital to renewable energy projects with secured offtake agreements
• Partner with local communities to secure a social licence to operate and enhance social outcomes
• Monitor emerging regulations to stay ahead of energy performance and disclosure requirements

Case Studies and Real-World Impact

Global industry leaders provide living proof of success through sustainable real assets:

Vinci Group has slashed emissions by 20% from 2018 to 2021, aiming for a 50% reduction by 2030. Their investments in smart mobility, modernized building stock, and renewable energy have boosted both cash flows and dividends.

The Scottish onshore wind farm achieves community buy-in via a habitat conservation plan and local bill discounts, reinforcing how natural capital and social value can go hand in hand.

In Aberdeen, a mixed-use development attained an EPC ‘A’ rating and BREEAM ‘Excellent’ status. The project generated significant energy savings and stimulated local employment, illustrating the low-carbon initiatives like solar farms integrated into urban planning.

Overcoming Challenges and Data Gaps

Despite their promise, sustainable real assets face hurdles, including limited transparency and inconsistent impact metrics for long-lived, illiquid holdings. Strengthening data standards across sourcing, management, and disposal phases is critical to unlock full potential.

By prioritizing comprehensive ESG integration and leveraging the long-lived physical asset class characteristics, investors can track and enhance real-world outcomes, ensuring both robust returns and tangible progress toward global sustainability targets.

Ultimately, sustainable real assets offer a powerful toolkit for forward-thinking investors. They represent more than a hedge against economic uncertainty; they are a direct vehicle for positive environmental and social change, built on the bedrock of physical, enduring value.