Investment Themes Sustainable real estate investments
The sustainable investment universe in Switzerland is growing significantly – according to the latest figures, investment stood at around CHF 700 billion by the end of 2018.
This equates to an increase of 83% on 2017, and over 100% when considered purely in the context of sustainable investment funds. Sustainable real estate investments are particularly relevant in Switzerland, as they represent 22% of all sustainable investment solutions, ranking immediately behind equities, which represent around 27%.
The growth seen in this area in recent years shows that this is not just a short-term trend. According to Forum Nachhaltige Geldanlagen1 (the industry association promoting sustainable investment in Germany, Austria, and Switzerland), the sustainable investment market in Switzerland has been growing by an average of 30% per year since 2005.
A comprehensive approach to sustainability
Investor behavior is reflected in social developments. For example, the UN Sustainable Development Goals, agreed by the international community, and the Principles for Responsible Investment (UN PRI) have helped to create a new dynamic in the sustainable investment market. The EU financial industry is currently working on an Action Plan for Sustainable Investments. In the future, a uniform classification of sustainable investments should be possible, as should uniform benchmarks and disclosure requirements. For private investors, the EU action plan provides for a mandatory determination of personal sustainability preferences as early as 2021. The related issue of climate change has become a prominent social issue worldwide.
Real estate and real estate investments account for a large proportion of the global consumption of energy, CO2, and resources. A comprehensive approach to sustainability in the real estate sector is therefore essential. Many real estate managers adopt a holistic approach that takes into account environmental, social, and governance considerations – known as ESG.
Sustainable real estate can create value in the long term and help improve the risk/return ratio. Using the results of numerous studies, we're now able to confidently answer the commonly asked question about whether or not sustainability comes at the expense of return. For example, a comprehensive analysis of over 2,000 studies showed that in 63% of cases, integrating the ESG criteria had a positive impact on economic performance (return on equity), while a negative impact was only observed in 8% of cases. Around 90% of studies showed no negative consequences when sustainability was the focus.
Creating transparency through labeling
Sustainability should be an essential component of active real estate portfolio management and should be considered across the entire value chain – from the planning and development of construction projects through to operational management and renovations or demolitions. In addition to rigorously adapting and optimizing the sustainability of properties, this is about creating transparency for investors.
For example, using internationally recognized building labels, implementing extensive building optimization programs, or taking part in the annual Global Real Estate Sustainability Benchmark (GRESB)2 are all ways to create transparency. This gives investors a detailed insight into the sustainability performance of real estate investments and allows them to benchmark the investment products against the respective comparison groups.
Sustainable real estate investing is not a temporary phenomenon. It gives investors the opportunity to earn returns while also contributing to sustainable environmental and social development.