Harnessing the climate potential of real estate

Real estate is responsible for a large proportion of global energy consumption. It is therefore vital that we consider the issue of sustainability, since real estate offers enormous potential for reducing CO₂ emissions.

July 23, 2021

Andreas Wiencke

Head of ESG Solutions at Credit Suisse Asset Management Global Real Estate

Operating and maintaining buildings requires energy. Too much of this energy still comes from fossil fuels, and outdated buildings allow a large proportion of the energy to be lost without ever being used. We must exploit this enormous potential if we are to reduce CO₂ emissions and achieve climate neutrality. The impact is particularly striking when it comes to real estate developers and building owners.

The process will be challenging to implement and will require a comprehensive approach to sustainability. The permanence of real estate puts it somewhat at odds with the gathering pace of climate change. If we are to achieve climate neutrality, we must adopt appropriate standards for new buildings. CO₂ emissions should be actively prevented in existing buildings – by using insulation or making greater use of photovoltaic systems and heat pumps, for instance. Everyone can benefit from this approach: the environment through a healthier climate, tenants through better living spaces and reduced energy consumption, and investors through the opportunity for higher returns owing to more attractive investment properties and portfolios.

Standards for new buildings

Wherever possible, new buildings employ standards and methods designed to guarantee climate-neutral operation. Examples include photovoltaic systems on the roof, insulation of the building envelope, and the selection of climate-friendly energy sources. The energy consumption of the entire building is managed using intelligent sensors and software solutions, with energy usage and CO₂ emissions being measured, analyzed, and reduced over the long term through systematic measures. Integration of electric mobility by creating links with public transport or providing charging stations for electric and hybrid vehicles may not be directly linked to the building’s climate balance, but they are important considerations nonetheless.

Recognized building labels, benchmarks, and sustainability reporting create transparency for investors and enable comparisons. One example is the Credit Suisse Asset Management Global Real Estate greenproperty quality seal, which was launched in 2009. The seal scheme evaluates more than 50 environmental, social, and governance (ESG) criteria using an independent and certified audit process that takes into account environmental and social considerations and the nature of corporate governance. National and international sustainability labels and standards such as Minergie, SNBS, DGNB, and LEED are also observed.

Existing real estate represents an opportunity to cut emissions

Existing buildings are very important to the sustainability and climate debate, as they can make an important contribution to the reduction of CO₂ emissions through the optimization of operations in the short term and renovations in the long term. From a climate perspective, these are very important measures, because if existing buildings are factored into the neutrality target equation, the status quo will be actively improved. The real estate sector has a big opportunity here – including in the area of impact investing.

The Paris Climate Agreement sets out a target of achieving climate neutrality by 2050. The Swiss Energy Strategy 2050 is tied into this target. The minimum target can, of course, be achieved earlier: we are aiming to reach this target with our buildings by 2040. Our focus as we try to implement the strategy is on national and international building certifications and comprehensive building optimization, and we also participate in the annual Global Real Estate Sustainability Benchmark (GRESB). The GRESB determines sustainability performance based on standardized ESG criteria. This gives investors insight into the sustainability performance of real estate portfolios and allows them to make comparisons between portfolios.

Additional comparison options are being developed in Switzerland thanks to the energy and CO₂ benchmarking currently being developed by the industry association Real Estate Investment Data Association (REIDA). It enables portfolio managers to compare the energy consumption and CO₂ emissions data for their real estate portfolios against the entire REIDA universe and subsequently determine optimization measures.

The benefits of climate neutrality today

Sustainability and environmental protection are and will remain the most pressing global issues, and this trend is increasingly being reflected in investment behavior. Sustainable investments are currently enjoying strong demand and high double-digit annual growth rates, with real estate investments particularly sought after.

Consistently prioritizing climate neutrality can also bring significant benefits to investors, and quickly. Today’s tenants – particularly the younger end of the market – want sustainable real estate. In turn, this increases the demand for properties that fit the bill, which boosts opportunities for returns and becomes a competitive advantage.

Increasing professionalization and transparency will influence how we manage risk and assessment models in the future, with sustainability also playing a decisive role in these models. Despite all the challenges, the climate-neutral real estate portfolio will set new standards and become the new normal.


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