Sustainability challenges facing real estate investment Vehicles in Switzerland

The Swiss real estate sector accounts for nearly 40% of the country's energy consumption, a crucial lever for achieving the 2050 climate goals. In their white paper entitled The Building Stock of Swiss Real Estate Investment Vehicles: Characteristics and ES Scores (Environmental and Social), CRML researchers at HEC Lausanne, Dr. Nathan Delacrétaz and professors Fabio Alessandrini and Eric Jondeau, look at optimization solutions.

Regional disparities

Due to the high concentration of buildings constructed between 1950 and 1980, REIV portfolios are mainly located in Zurich, Basel, Lausanne and Geneva. These are priority targets for renovations aimed at meeting energy efficiency standards.

• Basel leads the way in environmental efficiency: thanks to strict regulations and coordinated planning favoring renewable heating, Basel’s REIV properties stand out for their improved CO2 efficiency, compared to Geneva and Lausanne, where older buildings make improvements more difficult.

• Affordability pressure in Lausanne: although rent levels for REIV properties vary little from region to region, Lausanne presents a tighter market with relatively higher REIV prices and a lower influx of new residents.

A call for targeted investments

The report warns against the risk of sustainability capital focusing on already-performing assets, to the detriment of REIV properties in need of upgrading. To avoid a "two-speed transition", investors need to strike a balance between profitability and impact.

The research proposes two approaches. The first is to reward high-performing portfolios by prioritizing investments in REIVs already displaying strong sustainability practices. The second is to improve under-performing properties by actively targeting REIV portfolios with lower scores. The aim is to encourage necessary upgrades and ensure a more balanced transition in the market.

ES (Environmental and Social) scores, a benchmark for buildings

To give investors a clear, actionable sustainability benchmark, the researchers have introduced an ES score framework, an assessment tool that measures the environmental and social impact of properties owned by REIVs. This new standardized metric integrates energy efficiency, accessibility, green space availability and rent dynamics.

"Investors can thus contribute to Switzerland's climate and social objectives while making informed, impact-oriented decisions in the real estate investment market," conclude the two researchers, Nathan Delacrétaz and Eric Jondeau at HEC Lausanne.

The white paper is available free of charge on the CRML website.