In the face of rapid climate change, and a fast-evolving regulatory landscape aimed at tackling this crisis, wealthy investors are being advised to make their private estates more sustainable and achieve net-zero status to preserve their wealth for future generations and, ultimately, leave a lasting legacy.

According to several seasoned investment professionals we spoke to, investors should audit their current assets to ensure they comply with sustainability regulations. Any assets identified as unsustainable should then be upgraded or written off as soon as possible.

When it comes to future sustainable investments, experts advise the ultra-wealthy to focus on environmentally-conscious industries, like renewable energy and sustainable agriculture. These are expected to yield the biggest returns in the years to come.

Why ignoring net-zero investments is risky

One of the main reasons wealthy families should take steps to improve the sustainability of their private estates and investment portfolios is that it will enable them to preserve value for their descendants in fast-changing times.

With global governments continuing to enforce strict energy regulations and taxes, Paul Carlson, managing director at Law Firm Velocity, suggests anyone running a large private estate has a duty to take sustainability seriously for “the next generation” and that failing to do so is effectively “ignoring risk”.

He believes that non-compliant estates are destined to become a “liability” that will “bleed value” for their beneficiaries. Worse still, such estates could “get stranded on the books” of wealthy investors and their family offices, becoming burdensome for the future generations who inherit them.

This sentiment is echoed by Sergei Grechkin, chief strategy and risk officer at Cayros Capital. He warns that, if masses of wealthy investors ignore the importance of sustainable investments, the global economy is likely to “suffer major shocks” and potentially “lose value”.

On an individual level, Grechkin says private estates that fail to comply with net-zero targets could become liable to fines. As many funds and buyers now won’t consider assets with bad environmental track records, he warns that they could become hard to sell further down the line, adding, “I’ve seen even a beautiful home in London be turned down by picky renters because of low ESG standards.”

The benefits of sustainable investments

Apart from avoiding regulatory fines and investment write-offs, there’s a lot to gain from improving the sustainability of private estates. Junaid Afzal, commercial director at Haven Financial Planning, says it can make them “more resilient to rising energy costs, environmental risks and future regulation.”

What’s more, by taking action now, Afzal says wealthy families can ensure they aren’t caught out by “costly upgrades” at a later date. When it comes to physical assets, he adds that by equipping properties with renewable energy, efficient heating and insulation, owners can cut running costs and ensure the value of real estate isn’t diminished over time.

Describing sustainability as an act of “future proofing”, he adds that it will ensure wealthy people foster a legacy that “demonstrates responsible action” and stands the test of time. Much of this work can also appeal to the wider community in the form of “jobs, eco-tourism and local green initiatives”, he adds.

Identifying non-compliant assets and investments

For wealthy people looking to improve the sustainability of existing assets and investments that may not comply with energy standards and regulations, Grechkin says it’s vital to conduct a comprehensive, data-based audit of your portfolio.

To do this, he recommends using tools and frameworks like Energy Performance Certificates (EPCs), the Partnership for Carbon Accounting Financials (PCAF) and ESG ratings as they “help set standards for energy use and climate resilience”. He also advises performing quantitative analyses and peer comparisons to create well-informed sustainability plans.

As part of a sustainability audit, Afzal urges wealthy investors and family offices to determine the “energy performance and carbon footprint” of their assets. In the case of real estate, energy performance certificates will provide many of these answers, he says. He adds: “Lower ratings equal high emissions and greater regulatory risk.”

Making assets more sustainable

If unsustainable physical assets are identified through these evaluations, Grechkin says a simple way to bring them up to scratch is by “adding renewable energy, improving insulation and installing smart energy and water systems”. When conducting this type of work, you may be entitled to tax breaks and incentives to speed things up, but when government help isn’t available, he says wealthy investors will need to reach into their own pockets to get sustainability projects off the ground.

In addition to upgrading physical assets, Afzal says high-net-worth individuals should exit “unsustainable industries” over time. Examples include fossil fuels, manufacturing, construction, agriculture, fast fashion and food retail. Alongside exit strategies, Afzal believes investors should re-allocate their funds to areas like renewable energy infrastructure, sustainable private equity, sustainable agriculture and clean technology.

To avoid being caught out by projects that claim to be sustainable, but are the exact opposite (an issue known as greenwashing), Afzal stresses the importance of investing through funds that have undergone environmental, social and governance screening. Rich people don’t have to do this all on their own, though. As Afzal points out, many governments, not-for-profit organisations and impact investment funds are looking for support from private investors as part of larger projects.

Looking ahead

As the fight against climate change accelerates, the significance of sustainable private estates and portfolios will undoubtedly grow over the coming years - and there’ll be no shortage of opportunities for sustainable investors.

In fact, Afzal expects to see “explosive growth in renewable energy capacity approvals”, meaning investors in solar and offshore energy supplies should expect healthy gains. He also predicts a “substantial expansion” in battery storage, making it another lucrative area for private investors to consider. “Sustainable infrastructure values have been shown by multiple studies to be outperforming conventional peers by more than a fifth under net-zero scenarios.”

In the next decade, Carlson believes that sustainable investment will go from “a differentiator” to the mainstream form of investing for the wealthy and family offices. This will be enabled by an influx of sustainability-related regulations, large funds that prioritise ESG goals, and private markets playing catch-up, he explains.

He also sees an opportunity for wealthy investors and family offices to become early adopters of this tech and reap the rewards as demand for sustainable assets grows exponentially in the years ahead. “I believe family offices and private investors will be the ones experimenting first. They’ll be mixing traditional strategies with climate-smart investments.”

Grechkin, too, believes that those investing in sustainable assets today will be the winners of tomorrow. He says they’ll be able to retain their wealth, luxurious lifestyles, and heritage, concluding: “In the next ten years, early adopters will set the standard for responsible ownership by getting rewards in both the short- and long-term.”

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