How we integrate sustainability aspects into indirect Swiss real estate investments

The real estate sector emits around on quarter of Switzerland's total greenhouse gases. The federal government and cantons therefore want to significantly reduce energy consumption in the Swiss building stock and cut CO₂ emissions with their buildings programme. Against this backdrop, the asset management of indirect Swiss real estate investments is also challenged. The investment universe for indirect Swiss real estate investments is very broad and ranges from shares and funds to investment foundations. More and more investment vehicles are reporting sustainability figures or have defined a binding CO₂ reduction pathway. However, there is hardly any standardised information or data available. Due to the different legal structures and the currently still heterogeneous data landscape, we have opted for a proprietary sustainability approach.

In order to address the problem of data availability described above, we have been conducting an annual sustainability survey with the respective managers of the investment vehicles together with our sustainability team in Asset Management at Zürcher Kantonalbank for a few years now. The survey covers topics such as climate strategy, energy consumption, stakeholder integration and tenants' right to have a say. After data validation and various consistency checks, the data is aggregated. The questions are assigned to the four dimensions of controversies, ESG, SDG¹ and climate, all of which are weighted equally in the calculation of our proprietary sustainability rating.

One-to-ones with the responsible managers

The findings from our questionnaire are discussed in greater depth in individual meetings with the respective managers of the real estate vehicles. The sustainability strategy is also discussed. The resulting findings and the ranking in our sustainability rating are incorporated into our fundamental assessment, which is decisive for our active positioning. We also want to recognise any sustainability risks of the individual real estate vehicles at an early stage so that we can manage them accordingly. We also use the results of the sustainability survey to create transparency for our customers. The most important results are presented in a sustainability report, which is constantly being expanded due to the increasing availability of data.

From the sustainability survey to the sustainability report

What we additionally take into account

• We exclude real estate vehicles without a sustainability strategy from our investment universe.
• We analyse the CO₂ reduction and energy efficiency of the respective real estate vehicles in depth. In particular, we monitor developments to check whether the targets set are being achieved.
• With our sustainable investment solutions, we strive to continuously reduce the CO₂ e intensity of our investments. We also tend to favour real estate vehicles with a more pronounced increase in energy efficiency.
• Stewardship: For real estate shares and SICAV funds in our portfolio, we operate proxy voting in accordance with the Swisscanto Voting Guidelines and actively exercise voting rights. Although we do not have voting rights for all vehicles in the investment universe, such as funds, we seek active dialogue with the management of the various indirect Swiss real estate investments in the area of engagement. In doing so, we specifically address sustainability issues and, for example, point out gaps or shortcomings compared to the competitors. This enables us to actively fulfil our responsibility as one of the largest asset managers of indirect real estate investments.

Standardisation in the industry on the horizon

An increasing number of vehicles are being assessed annually by the international sustainability standard GRESB. However, many vehicles, especially smaller ones, do not yet have a GRESB rating. In order to enable a fair comparison between all indirect real estate investments, a general standardisation of the data is essential. Clear efforts in this direction can be recognised in the industry. To this end, the Asset Management Association Switzerland (AMAS) has issued guidelines for the calculation and disclosure of environmentally relevant key figures. According to these guidelines, all funds are obliged to calculate and publish the following key figures by the end of 2024:

• Degree of coverage
• Energy source mix
• Energy consumption and intensity
• Greenhouse gas emissions and greenhouse gas intensity

The Konferenz der Geschäftsführer von Anlagestiftungen (KGAST) also recommends that its members report their sustainability figures in accordance with this standard. Various labels already exist for the certification of buildings, such as Minergie, the Standard Nachhaltiges Bauen Schweiz (SNBS), Sustainable Building with the DGNB and Leadership in Energy and Environmental Design (LEED).

In any case, the industry has recognised the signs of the times that increasing standardisation of sustainability data is necessary. The resulting efficiency gains will ultimately benefit all market participants.

¹The Sustainable Development Goals (SDGs) were defined by the United Nations General Assembly in 2015. Our sustainability survey uses individual questions to examine whether the real estate vehicles make positive contributions to the SDGs.

Legal information: The publications were prepared by the Buy-Side Research of the Asset Management of Zürcher Kantonalbank and not by the «Financial Analysis» department in accordance with the «Guidelines for Ensuring the Independence of Financial Analysis» issued by the Swiss Bankers Association. The publications are therefore not subject to these guidelines. This document is for advertising and information purposes only, is intended for distribution in Switzerland and is not directed at persons in other countries or persons whose nationality or place of residence prohibits access to such information under applicable law.