Winners – why sustainable real estate pays off in the long term
The International Energy Agency (IEA) estimates that buildings are responsible for one-third of all CO2 emissions, 40% of energy consumption and 50% of the consumption of all natural resources. Sustainability considerations are therefore a core element of investment decisions.
Growing significance of sustainability in the real estate sector
On May 21, 2017, the people of Switzerland voted in favor of completely overhauling the Swiss Energy Act. The latter was based on the Swiss Federal Council’s Energy Strategy 2050, which envisages gradually halving buildings’ energy consumption by this date and achieving a sixfold reduction in greenhouse gases. The coming years will see laws, ordinances, and building regulations tightened even further with a view to ensuring that these ambitious targets are met. Since January 1, 2018, the CO2 levy on climate-damaging fossil fuels has been CHF 96 per metric ton of CO2, marking a 700% increase since the tax was introduced in 2012. This example from Switzerland clearly illustrates how regulatory authorities across the world will be passing laws and regulations over the coming years that will exert a growing influence on the buildings and construction sector as well as on the management of real estate portfolios.
For their part, when they lease office space, businesses are increasingly seeking buildings that are highly sustainable. Prospective tenants generally base their assessment of a building’s quality on sustainability ratings. There is still no standardized international label for sustainable real estate. As far as Switzerland is concerned, buildings have been certified with labels including Minergie, LEED, DGNB, greenproperty, and SNBS. The various labels assign different weightings to the three dimensions of sustainable construction – society, business, and the environment.
The Minergie standard, for instance, focuses on a building’s energy consumption, while greenproperty or SNBS are holistic labels that assess sustainability in terms of environmental, social, and governance (ESG) criteria.
For all its investment products, the Credit Suisse Global Real Estate unit follows the international standards for sustainability reporting, thus providing greater transparency for investors.
There is also an ever-increasing demand from investors for sustainability aspects to be taken into account. There are two aspects to these considerations: firstly, the investment properties should be of high quality and therefore able to stand the test of time. Secondly, many investors are now increasingly conscious of how maintenance, energy, renovation, and related costs can add up over a property’s life cycle. If a property meets high standards of construction and energy usage, this can lead to large cost savings.
Targeted measures, measurable results
We take various measures in managing our real estate portfolios:
- operational optimization,
- benchmarking, and
- labels/quality seals.
For all its investment products, the Global Real Estate unit at Credit Suisse follows the international standards for sustainability reporting, thus providing greater transparency for investors and optimizing the performance of the property portfolio itself. As well as systematically collecting details of energy and CO2 consumption, water usage, and waste details are also recorded.
In 2012 we joined forces with Siemens in launching a program to systematically reduce the overall energy consumption and CO2 emissions of existing properties. The aim is to cut total energy consumption and carbon dioxide emissions in buildings by optimizing operations, without the need for capital expenditure on construction work. Examples include directing air flows in air conditioning systems or optimizing heating curves and limits in the heating system.
Better insulation of the building envelope and replacing heating systems are the most effective ways of cutting CO2 emissions, offering huge potential. However, the necessary building work on walls, roofs, and windows – which may include full replacement – require sizable investment. The same applies to modernizing or replacing heating systems. This may involve replacing oil heating with a long-distance heating system, heat pumps or wood-fired heaters, or installing solar panels on roofs. The key consideration in this regard is not about generating extraordinary investment, but rather viewing the investments that are required as part of the normal maintenance and repair cycle from the sustainability perspective.
Regular verification and benchmarking of outcomes against the international market environment are crucial to the successful implementation and optimization of the relevant sustainability measures. Credit Suisse has been a member of the Global Real Estate Sustainability Benchmark (GRESB) since 2013. With more than 850 participating real estate investment managers and in excess of USD 3.7 tn in property values (as of 2017), GRESB offers the world’s leading sustainability benchmarking. GRESB collects quantitative and qualitative data on companies, annual performance, and target achievement across all sustainability-related issues.
In 2010, Credit Suisse’s Global Real Estate unit decided to aim for the greenproperty quality seal or comparable standards for all new buildings. The number of certified spaces and buildings has grown continuously since then. This year will see us obtain the greenproperty seal of quality for our 100th property.