Most Swiss real estate investment managers already have clear targets for reducing CO2 emissions and achieving the net zero objective by 2050. This is one of the main conclusions of a study on their commitment to environmental, social and governance (ESG) criteria conducted by researchers at HEC Lausanne, University of Lausanne, in collaboration with Banque Cantonale Vaudoise (BCV). The study is the first of its kind and will be repeated annually.
Researchers in the Center for Risk Management (CRML) at HEC Lausanne, the Faculty of Business and Economics of the University of Lausanne, Fabio Alessandrini, Eric Jondeau, Ghislaine Lang (previously HEC Lausanne) et Evert Reins, focused on the three main types of indirect investments (as opposed to direct ownership of buildings) in the Swiss real estate sector, namely funds, foundations and real estate companies. Among other things, the analysis looked at the incorporation of energy transition targets for a climate-neutral Switzerland by 2050. The study was carried out for the first time in 2021, based on information for the 2020 financial year, and will be updated annually.
With a total volume of assets valued at 174 billion Swiss francs, the indirect real estate investments covered by the study represent an important asset class for numerous investors, especially pension funds. While real estate is one of the main sources of CO2 emissions in Switzerland, accounting for around a third of the total – and offers significant potential for reductions – the implementation of ESG criteria has been less closely studied in this sector than in other types of investment. This analysis therefore provides a benchmark for investors.
The starting point for the study was making contact with 143 funds, foundations and real estate companies. A total of 59 entities, representing 66 portfolios, responded to a questionnaire, producing information on over 500 qualitative and quantitative data points concerning ESG criteria. The response rate was 46%. In terms of assets under management, the study covered around 65% of the market, with most of the major portfolio managers taking part. Coverage for listed investment funds was 93%.
The priority: reducing CO2 emissions
An analysis of the responses shows that most respondents (75%) already have clear targets for reducing their CO2 emissions and achieving the net zero objective. This represents a reduction of 16% by 2025, 40% by 2030 and 96% by 2050.
Although the real estate portfolios examined are performing well in terms of energy consumption and CO2 emissions, they are less strong in other areas – particularly waste production and water consumption.
According to the report, there is also room for improvement in terms of the social dimension, with low levels of community engagement in relation to real estate developments, particularly on the part of real estate companies.
Overall, most organisations indicated that they had dedicated significant resources to ensuring compliance with ESG criteria. Around 50% stated that they had hired at least one full-time member of staff with responsibility for managing ESG issues, while 70% said they had set up a dedicated committee or task force. Some 45% of respondents have signed the United Nations Principles for Responsible Investment (UN-PRI).
An overview of sustainability
As UNIL/HEC professor and co- director of the CRML, Eric Jondeau, said: “By establishing a benchmark for the annual ESG performance of real estate investment portfolios, we can compare the data and highlight trends over time. The report will provide detailed trend information on the performance of these investment bodies, based on the various aspects of ESG criteria for the Swiss real estate assets they hold.”
The co-director of the CRML, UNIL/HEC professor Fabio Alessandrini, said: “The purpose of the report is to offer an overview of sustainability. Although environmental questions appear to be the key point, an exhaustive and more pertinent evaluation of sustainability needs must include social and governance policies within the same framework.”
As Fabio Simoncini, real estate portfolio manager for BCV Asset Management said: “These results are useful for a better appreciation of ESG criteria in managing portfolios invested in the Swiss real estate sector. This is a first objective review of how these criteria are applied to this asset class, which still lacks standard measurements for what is now a key aspect for many investors, especially in the institutional sector.”
Michel Aubry, head of BCV’s Asset Management Department, said: “This research improves the level of transparency of Swiss real estate investments and benefits all asset management actors in Switzerland. Within its field, it contributes to the efforts being made by the financial sector to enhance its status as a benchmark for socially responsible investment.”
The study can be downloaded from the CRML website: https://real-estate.crml.ch/