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Interest in sustainable investments is unabated. That is not surprising, since sustainable investing is en vogue and offers multiple benefits. Read more in our interview with Andreas Wiencke, Head of ESG Solutions at Credit Suisse Asset Management Global Real Estate.
January 23, 2020
Andreas Wiencke: It's certainly true to say that sustainable investing is in keeping with the mood of the times. We've seen a positive change in the awareness of this issue and its importance. Investors are definitely more sensitized to the issue of sustainability. However, Credit Suisse Asset Management Global Real Estate has actually been committed to sustainable building, sustainable property management, and the responsible use of resources for over 15 years. We were among the pioneers of sustainable solutions for real estate investments.
According to the Forum for Sustainable Investments (FNG)1, around CHF 500 billion of sustainable investment products are managed in Germany, Austria, and Switzerland. Switzerland alone accounts for around CHF 250 billion, which equates to a year-on-year increase of 72%. Real estate investments are particularly popular in Switzerland and account for 22% of all sustainable investment solutions, just behind equities with around 27%.
Real estate is an essential component of a balanced portfolio in the ongoing low interest rate environment. This is because it has a low correlation with other asset classes and offers robust returns. However, real estate is also responsible for a large proportion of global energy consumption. It is therefore essential to take a comprehensive approach to sustainability in real estate. We have been doing this in Global Real Estate for many years and that is exactly what investors want.
Regulators play an important role and are calling on the financial industry to offer more sustainable investments. They want to see the industry making an active contribution to meeting sustainability targets. These include, for example, the 17 UN Sustainable Development Goals (SDGs) and the UN Principles for Responsible Investing (PRI). The Paris climate accord requires every country to reduce its greenhouse gas emissions. At the same time, many participants in the market have recognized that integrating ESG (environmental, social, and governance) criteria adds value in the long term and leads to an improved risk-return ratio.
Our aim is to offer investors access to innovative real estate investments that are stable in value and use resources responsibly. We therefore look at sustainability across the entire value chain: from planning and development of construction projects through to operational management and renovations or demolitions. As well as rigorously adapting and optimizing the sustainability of properties, this is about creating transparency for investors. They want to be able to measure and compare how sustainable an investment is.
We use various internationally recognized building labels, have launched an extensive building optimization program in our properties, and take part in the annual ESG benchmarking exercise conducted by GRESB2. This gives investors a detailed insight into the sustainability performance of the properties and allows them to make comparisons. The Global Real Estate investment vehicles boast a highly transparent ESG performance. Our strategy also includes clear product positioning of three ESG real estate funds, which have a specific sustainability approach in their investment strategy and have adopted the principles of the SDGs and PRI.
All three funds invest in energy-efficient, resource-efficient, and low-emission properties and reduce their CO2 emissions. In terms of governance criteria, the three ESG real estate funds focus on working conditions and ethical standards, health and security, and the exclusion of tenants from unethical sectors.
The strong demand for more sustainable investment options increases the return opportunities. This financial benefit comes on top of the environmental and social benefits. More sustainable investments will mean a reduction in the carbon footprint of real estate, and impact investing will lead to more social and environmental projects being carried out in less developed regions. Anyone who invests sustainably will achieve a financial, environmental, and social return.
Yes, that's right. While ESG is about a comprehensive approach to sustainability in real estate, impact investing aims to achieve a particular social or environmental impact. We very much believe that impact-based investments are capable of generating at least market returns. The three specific funds combine ESG and impact investing criteria equally. In all other Global Real Estate investment vehicles we focus, as already mentioned, on building labels, building optimization, and the GRESB performance benchmark.
Sustainable real estate investing is not a temporary phenomenon. It gives investors the opportunity to earn attractive returns while also contributing to sustainable environmental and social development. One of the challenges for providers is to quantify the sustainability benefits transparently. Only then will investors be able to balance the short-term costs associated with greater sustainability with the long-term benefits and increase their exposure to these real estate investments even more. Digitalization will help us in this. It will enable us to become more efficient and provide better data and information.
Andreas Wiencke has more than 13 years of experience in real estate, sustainability, asset management, and applied research. He worked in various functions within Credit Suisse Asset Management Global Real Estate before being appointed Head of ESG Solutions and Head of Strategic Projects at the beginning of 2019. Andreas Wiencke holds a degree in economics and a doctorate in economics from the University of Mannheim. His other qualifications include a course in business sustainability management from the University of Cambridge.
1 Source: FNG https://www.forum-ng.org/en/home.html
2 GRESB assesses and benchmarks the Environmental, Social and Governance (ESG) performance of real assets, providing standardized and validated data to the capital markets. https://gresb.com/
The views and opinions expressed in this article are those of the author(s) and do not represent the views of Credit Suisse. Assumptions made in the article are not reflective of the position of Credit Suisse and may be contrary to that of Credit Suisse.