In today's real estate landscape, sustainability has become a key consideration for investors. While 95% of real estate investors use ESG data in their decision-making, obtaining comprehensive ESG data for real estate investment opportunities in Switzerland can be challenging. The complexity of environmental dimensions and the absence of a widely accepted ESG framework contribute to this difficulty. In this article, we look into the environmental factors of ESG, exploring how to measure environmental metrics, the current environmental state of Swiss real estate portfolios, and the available certifications in Switzerland.
There are many environmental metrics which can be taken into considerations to assess a property’s sustainability. In this article, we focus on the two primary environmental metrics:
• Greenhouse gas emissions (GHG emissions)
• Energy intensity
GHG emissions and energy intensity of a building can be calculated as follow1:
After emissions caused by transports, the real estate sector is the most important contributor to greenhouse gas emissions, with 26% of the country’s emission2. 28% of these emissions are coming from building materials and construction processes while the remaining 72% come from the operations of buildings3. The GHG linked to the operation of buildings corresponds to emissions associated with the production of heating and cooling, the production of hot water and electricity consumption in common areas.
Another important metric looked carefully by asset owners is the energy intensity. Energy intensity refers to the amount of energy consumed per square meter of a building's size. The intensity can vary significantly depending on factors such as the building's envelope, design, construction materials, HVAC systems, lighting efficiency, and the types of equipment or appliances used within the building.
To reduce GHG emissions and achieve climate neutrality by 2050, Swiss voters have approved in June 2023, the Climate and Innovation act. For real estate, the GHG, both direct and indirect must be reduced by 82% by 2040 and by 100% by 2050 compared to 1990 levels4.
From the formulas above, we understand that effort should be made towards 1) a lower emission factor and 2) a lower energy consumption:
1) Today, 58% of Swiss residential buildings rely on fossil energy for heating. 28 to 32 thousand of heating systems are changed for a new renewable energy system1.
2) Today, half of the buildings have a CECB G rating and have therefore a poor isolation. That translates into 1.1 million residential buildings that have the need for an environmental refurbishment. 1% to 1.5% of the building envelope is renewed every year, 2% to 3% of the windows are changed every year1.
According to KPMG’s latest study on Swiss real estate funds, investment foundations, real estate companies and pension funds, the energy intensity threshold is met on average and investors are therefore on the right pathway to 2050 goals4. However, the energy intensity, on the other hand, exceeds the thresholds by more than 10% on average. As such, the focus for real estate should be placed on the transition from fossil fuel heating sources to renewable sources. Financial aids are provided to building owners to support this transition.
To increase transparency to tenants, investors, and owners, many available tools and resources to assess and monitor a property’s sustainability exist. Certifications and labels provide a framework to assess the ESG factors of a property. In Switzerland, three prominent certifications include:
1. GEAK/CECB: The Cantonal Energy Certificate for Buildings evaluates building envelope characteristics, GHG emissions, and overall energy balance, providing ratings from A to G. GEAK is the most widely used building certification in Switzerland, with 165 thousand buildings holding a certification.
2. Minergie: Focuses on energy efficiency, indoor comfort, and sustainability, with different levels of certification reflecting increasingly stringent requirements. There are currently 57 thousand buildings with a Minergie label.
3. SNBS: The Sustainable Building Standard considers environmental, social, and economic factors, providing certifications for both new construction and existing buildings.
Additionally, international certifications such as BREEAM, LEED, and DGNB offer frameworks for assessing sustainability on a global scale, each with its own set of criteria and certification levels. International certifications are nevertheless not very popular in Switzerland, as only 248 buildings have a BREEAM certification, 155 buildings have a LEED certification, and 10 buildings have a DGNB certification.
Sustainability is a critical aspect of Swiss real estate that cannot be overlooked. As the demand for environmentally responsible properties increases, stakeholders must prioritize sustainability in decision-making processes. The path to net zero will be challenging but not impossible. To achieve it, a concerted effort from policymakers, investors, developers, and tenants will be key.
Sources:
1) Center for Risk Management – Lausanne (2023) – Available at https://crml.ch/
2) SFOE (2023) – Available at https://www.bfe.admin.ch/bfe/en/home.html
3) Schweizerische Eidgnossenschaft (2023) – Available at: https://www.admin.ch/gov/en
4) KPMG (2023) - Available at https://kpmg.com/ch/en/home/insights/2023/11/real-estate-net-zero.html