Resilience against physical climate risks is no longer a niche concern for real estate investors. It is increasingly shaping capital allocation, portfolio strategy, and risk management decisions across the investment lifecycle.

LEED v5 – the latest version of a well-known green building standard – introduces new ways to systematically assess how climate hazards could affect asset performance and value over time. Notably, all LEED projects must now complete a Climate Resilience Assessment to identify and address observed and projected natural hazards that could affect the site and building function. Moreover, new resilience pathway credits are being piloted to allow resilience-promoting actions to count toward LEED certification.

Against this backdrop, BMO recently participated in a panel at the Canada Green Building Council (CAGBC) Green Building Summit titled “From Standards to Strategy,” which explored how physical climate risk and resilience are influencing real estate investment, portfolio, and capital planning decisions. Joining me on the panel were:

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  Mike Williams, President, ClimateFirst (Moderator)

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  Kit Milnes, Vice President, Sustainability & Resilience, KingSett Capital

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  Ridhima Nayyar, Assistant Vice President, RioCan REIT

A range of factors is driving asset owners, investors, and banks to think proactively about physical climate risk and resilience of the built environment. These factors include:

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  Risk management on a site and portfolio basis

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  Increasing availability of physical climate risk and financial impact data

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  Regulatory requirements

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  Investor demand

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  Opportunities for cost savings and profitability via innovation.

As certifications increasingly highlight resilience as a requirement, Ridhima Nayyar of RioCan REIT observes two different pathways emerging: one as a driver of business value creation and the other as a compliance exercise. She emphasizes that “when physical climate risk and resilience become part of your investment decisions, they’re not left alone as part of certification. They have to be part of the capital allocation for long term portfolio planning.”

Nayyar also notes the importance of maintaining an ongoing understanding of risk across a portfolio of sites. She argues “business value is generated when you look at risk on the portfolio level and not just at the site level.”

This growing focus on resilience is reinforced by recent research from the BMO Climate Institute in partnership with ClimateFirst Building Solutions Inc. (ClimateFirst) and Investment Management Corporation of Ontario (IMCO), showing that when physical climate risk is translated into financial terms, investors are better able to prioritize assets and justify action.

Panelists also noted that compliance actions – like the fulfillment of regulatory requirements or documentation required for a certification like LEED – generate insights that can be leveraged to make a business case for resilience upgrades.

Rather than pursuing large, standalone resilience projects, panelists emphasized the importance of integrating resilience upgrades into capital decisions that are already being made. Kit Milnes of Kingsett Capital notes that because resilience avoids loss rather than creating new returns, investors may find it difficult to justify stand-alone spending. Real estate private equity firms may see success focusing on lower spend opportunities to integrate resilience into buildings across their portfolio, rather than major capital projects that require an extensive business case.

Resilience projects can achieve easier stakeholder buy-in at points when smaller projects are undertaken alongside end-of-life system upgrades already part of regular capital planning. Milnes notes that “what we try to do is look at when we have major capital coming down the pipeline…that’s the time where if you have major physical risk spend you want to execute, you lump it in.”

And where resilience is integrated, firms can see tangible benefits. From an asset performance perspective, operational savings can benefit both asset owners and tenants. When savings, stability of assets, and tenant demand can be observed and communicated, a better business case for resilience investment can be built.

Ultimately, panelists agreed that resilience is too important to address in isolation. Understanding physical climate risk and resilience is a responsibility that is too often siloed in sustainability groups, despite the relevance across finance and operations functions.

Resilience is fundamentally a community challenge. It requires collaboration across sustainability, finance, and operations within organizations, as well as coordination with municipalities and infrastructure providers. Factors including municipal investment in resilience and the evolving nature of disaster recovery are important for building owners and occupants to understand. As physical risks increasingly shape asset performance, the ability to align standards, strategy, and capital planning will be critical to protecting long-term value in the built environment.