How Sustainable Is Swiss Real Estate? Evidence from Institutional Property Portfolios

Abstract

We evaluate the sustainability of real estate investment vehicles in Switzerland according to the three Environmental, Social, and Governance (ESG) pillars. For this purpose, we conducted a survey of direct investors (real estate investment companies, funds, and foundations) inquiring about their sustainability practices. Based on the data of this survey, we assess the ESG profile of their real estate investment portfolios. A methodology is proposed to build an ESG score and subscores on the three pillars of sustainability. We find that, in the aggregate, the performance of real estate investment vehicles is relatively good on energy issues, whereas it is less developed on environmental issues outside of energy. Social policies seem to be less of a priority for investment vehicles than environmental and governance policies. Large entities tend to perform better than small ones. Regarding the various categories of investment vehicles, foundations tend to have more advanced ESG practices than funds and companies. We do not find any significant impact of ESG scores on the financial performance of the portfolios. This research also highlights the need for the industry to establish reporting and technical standards on sustainability matters.

Keywords: Sustainable investment, ESG ratings, Real estate

JEL Classification: C83, Q01, Q56, R3