scholz, r.w., bügl, r., hüni, g.r. and leimgruber, c
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The importance of social criteria for responsible property investment: A Swiss view on the market success of sustainable real estate fundsScholz, R.W., Bügl, R., Hüni, G.R. and Leimgruber, C.
ERES Conference 2009, Stockholm, June 24-28, 2009
Workshop Session 6-C Investment and Finance
Outline
1. Introduction2. Results
2.1. Sample description
2.2. Sustainability criteria
2.3. Market acceptance
3. Sustainability - What can we learn?4. Conclusions and outlook
2
1. Introduction (1/4) – Swiss real estate market
3Sources: Cf. Graf (2008); Wüest & Partner (2006).
Bio. US$
Total real estate value in Switzerland is about 1436 bio. US$
This equals factor 4 of the Swiss GDP and factor 2 of the stock market capitalization in Switzerland
About 50% property ownership and 30% property to rent
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
1. Introduction (2/4) – Sustainable property investment
ETH-UNS case studies: Gothenburg (Lundby), Zürich Nord, Sulzer-Escher Wyss, Basel and other cities and regions
Certification according to Minergie standards is rapidly upcoming, but this certification just equals about 0.5 - 0.75% of the total building stock in Switzerland (Minergie, 2008; SFSO, 2006)
Shares of energy for room heating, warm water supply and CO2 emissions generated by energy at home are almost about 40% (Ankirchner, 2006; Weber and Perrels, 2000)
Improving waste management: Amount of building waste is enormous, and recycling often means material downgrading (cf. Spörri et al., 2009ab)
Strong ecological commitment (Minergie, SIA 112/1, Life cycle
analysis, ...), but social criteria are missing
4
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
1. Introduction (3/4) - Research questions
Which sustainability criteria do key financial stakeholders view as important for the market success of S-REFS?
What is the role of sustainable social infrastructure? How is the market acceptance of S-REFs by financial stakeholders,
and what role do cognitive drivers and institutional context play ?
5
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
1. Introduction (4/4) - Methods
Procedure of the study - basic modules: Focus groups (N = 15) Generation of sustainability components Questionnaire study (N = 68) Anticipated importance, market
acceptance
Sample of the questionnaire study: 58 institutional real estate investors (from 44 employing institutions) 10 real estate funds suppliers (from 4 major REF supplying companies)
Market acceptance indicators: Decision to invest Investment volume Willingness to accept return shortfalls
6
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
2.1. Sample description (1/1)
Capital investment categories:
7
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
2.2. Sustainability criteria (1/3) - Focus groups
Attractivity of location Energy for usage Well-being Return on investment Building materials
= most important criteria
gre
en
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nity
qu
ality o
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rs
cost o
f ma
inte
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cost o
f rep
air
fab
ric structu
re
bu
ildin
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ate
rials
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we
ll-be
ing
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erg
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sag
e
attra
ctivity of lo
catio
n
8
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
Mean
4. Conclusions
and outlook
9
Low pollutant-loading of building materials
Long life cycle of structural components
Little sealing of soils Quality of landscape and few natural hazards
Low-energy demand for warm water
Low costs for construction and conservation
Support for endemic plants on green areas
Conservation and creation of pristine areas
High proportion of renewable energy
Low-maintenance constructions
Greening of roofs and facades
Low electricity demand during operation
Low expenses for value conservation
Indoor air quality Easy substitutability of technical components
Eco-friendly raw building materials
Slim building technique
High proportion of recycl. building materials
Above-average return on tenancy
Blue: above-average import. for market success
Little demand for realty areas
Red: below-average import. for market success
Building materials
and energy
Expenses, return
and flexibility
Green space
design
Landscape &
natural ecology
Su
sta
ina
bil
ity
cri
teri
a f
or
RE
Fs
economic sustainability criteria
are dominant for market success
ecological sustainability criteria
are of minor importance for market success
Explained
variance
=
83.1%
2.2. Sustainability criteria (2/3) – Questionnaire study
2.2. Sustainability criteria (3/3) – Social infrastructure
Social sustainability is no independent factor
Substantial correlation of “Sustainable social infrastructure“ and orthogonal sustainability factors
Fundamental dilemma of sustainable real estate investment: Key finance stakeholders aspire maximum return on
investment and avoid social investments of public use
Critical social factors are underestimated with regard to the added value of sustainability
They view sustainability as a mean of risk reduction
10
Sustainable
Social infrastructure
Conventient transportation network
Considering future development
Daylight penetration in the building
Well-being and feeling secure
Obstruction-free and equipped construction
Flexibility and modifiability of building and structures
Playgrounds, sports facilities, seating accomod.
Social mixture of dwellers
Social sustainability criteria
large spread of importance
Su
sta
ina
bil
ity
cri
teri
a f
or
RE
Fs
2.3. Market acceptance (1/2) – Willingness to invest
3 out of 4 institutional real estate investors are potential S-REF investors
9.3 Mio. Swiss Francs (7.04 mio. US$) mean willingness to invest of potential S-REF investors
60 percent of the real estate funds suppliers are potential S-REF suppliers if the supply of sustainable real estate is enough
Acceptance of return shortfalls: 38% of responding investors are willing to accept return
shortfall Average absolute rate return shortfall of 0.85% under benchmark= Mean relative interest rate decrease of 21%
(SWX Immobilienfonds Index, average return of 4.0% 2004-2005)
11
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
3. Sustainability -
What can we
learn?
4. Conclusions
and outlook
12
2.3. Market acceptance (2/2) - Drivers
12
Positive impacts
Negative impacts
Mixed impacts
13
3. Sustainability (1/2) - What can we learn?
What can the finance sector learn? Develop S-REFs from a social and ecological perspective Show the sustainability management effect of S-REFs Sustainability assessment of S-REFs has to inform classical finance evaluation
What is missing for sustainable development? Real estate stock of sustainable buildings with gentrification potential is critical but also at top-level locations (eco-friendly, lifestyles, ...) Sustainable buildings exist in the residential sector (single-family houses), but sustainable buildings for multi-storey superstructures, offices, trade/commerce
and industry are very rare (diversification) Sound differentiation of sustainable vs. conventional REFs:
Under which conditions can a REF be called “sustainable”?
14
3. Sustainability (2/2) - What can we learn?
Where are the boundaries for investors? Ecological and social market arguments are perceived as hampering return (anticipated costs > yield) Critical social criteria and proper implementation in finance instruments are some kind of a blind spot
Where is the potential for transdisciplinary action? Transdisciplinary action is a process of mutual learning of practice and science on equal footing Development of diversified development funds, object funds, ... Develop a S-REF from scratch or redevelop a conventional REF
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
4. Conclusions
and outlook
3. Sustainability -
What can we
learn?
4. Conclusions and outlook (1/1)
S-REFs are a business case in countries with sustainability commitment
Results help to introduce S-REFs in the finance market and to understand the investment behavior of institutional real estate investors
Some critical criteria of social sustainability are missing (cf. Kriese and Scholz, submitted), and views on economic sustainability criteria are dominant for market success than views on ecological criteria
Stock of sustainable real estate in Switzerland, volume of S-REFs and sustainability engagement is critical
Besides technological systems, lifestyles are a key component for the ecological and social efficiency of urban and regional systems
Strong need for sustainability learning and transdisciplinary action for the development of S-REFs in order to ensure quality standards
15
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
4. Conclusions
and outlook
3. Sustainability -
What can we
learn?
Thank you!
16
APPENDIX
17
Swiss real estate market
1.0% of the total real estate value are stock-traded and 1.5% are invested in indirect real estate investment products (Credit Suisse, 2006)
About 0.8% of the total real estate stock value in Switzerland is traded in open-ended real estate fund (REF) products
Swiss real estate investment funds, which are authorized by the Swiss Federal Banking Commission, had a total asset volume of US$11.1 billion as of midyear 2005 (Swiss National Bank, 2007)
Sustainable real estate funds (S-REFs) are now in the stage of market introduction and product settlement
18
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
4. Conclusions &
outlook
3. Sustainability -
What can we
learn?
Definitions
Sustainable real estate funds (S-REFs): A definition of S-REFs should meet both the performance demands of
financial institutions as well as the impacts of the real estate investment.
Sustainable social infrastructure: Sustainable social infrastructure consists of goods, services and spatial
structures that enable human systems to realize their capabilities without social inequality.
19
20
Description of hypotheses
Methods
21
Design of a S-REF
22
Conclusions and outlook
S-REFs create supply of sustainable building stock which can may attract and foster the expression of sustainable lifestyles.
The application of human-environment systems allows for a more thorough interdisciplinary understanding of lifestyles
Managing the incentive-barrier structures, which are linked to sustainable lifestyle settings, is crucial for enabling sustainable urban living.
The urban design of lifestyle settings may aid in structuring improvements on the material and cultural spheres that may eliminate system disparities.
The proposed conceptualization of lifestyles can be utilized for structuring sustainable transitions of urban and regional systems
S-REFs can enhance the functionality of urban planning (enhanced district planning, integ. participation, future-oriented dialogue processes)
23
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
4. Conclusions &
outlook
3. Sustainability -
What can we
learn?
E.g.,
- Energy & mobility
- Residential living
- Health care
- Working sphere
- Consumption
patterns
- Leisure-time activities
- Social networking
Human-environment matrix
components
Human matrixH
Cognitive-behavioral submatrix:
Socio-demographic submatrix:E.g.,
- Age - Life cycle status
- Family status
- Nationality
- Gender - Social status
- Income - Wealth
Lifestyle consequences
Human outcomes
Environmentaloutcomes
E.g.,
- Acidification
- Depletion of (a)biotic raw materials
- Eutrophication
- Ecotoxicity
- Greenhouse effect
- Ozone layer depletion
- Physical ecosystem degradation
- Smog, noise, odor
Environmental matrixE
Situational submatrix:
Socio-cultural submatrix:
E.g.,
- Health status, human toxicity
- Income distribution, property equity
- Life expectancy, direct victims
- Population, community structure
- Quality of life, well-being
- Migration, social exclusion
- Social equity, access to resources
- Social exclusion, cultural landscape
E.g.,
- Built
environ.- Formation
- Climate - Legislation
- Density - Media coverage
- Ecology - Urbanization
E.g.,
- Acculturation
- Reference
groups
- Cultural env.
- Social capital
- Integration - Social norms
- Hist. context
- Segregation
E.g.,
- Attitudes - Risk perception
- Awareness - Salience
- Dissonance - Skills
- Interests - Values
Identification
Affiliation
Distinction
Symbolic motives
E.g,
MotivesIncentive-
barrier structur
es
E.g.,
Affective motives
Instrumental motives
Habits
Lifestyle components
Lifestyles
Lifestyles - Fields of transition
25
Energy & mobility
Residentialliving
Workingsphere
Consumptionpatterns
Healthcare
Consumer behavior
Urban housing
Public health
Traditional lines oflifestyle research
Fields of transition
Leisure-timeactivities
Socialnetworking
Lifestyles inurban systems
Further readings
Sustainable real estate funds (S-REFs): Sustainable property funds: financial stakeholders’ views on sustainability criteria and market acceptance.
By Bügl, R., Leimgruber, C., Hüni, G.R., & Scholz, R.W. (2009). Building Research & Information.
Sustainability criteria for finance products: Principles for sustainability rating of investment funds.
by Koellner, T., Fenchel, M., Weber, O., & Scholz, R.W. (2005). Business Strategy and the Environment. Incorporating sustainability criteria into credit risk management.
By Weber, O., Scholz, R.W., & Michalik, G. (2008). Business Strategy and the Environment.
Embedded case study methods - book: Embedded case study methods: Integrating quantitative and qualitative knowledge.
By Scholz, R.W., & Tietje, O. (2002)
Environmental literacy - book: Environmental literacy in science and society: From knowledge to decisions.
By Scholz, R.W. (in prep.)
26
1. Introduction 2.1. Sample
description
2.2. Sustainability
criteria
2.3. Market
acceptance
4. Conclusions &
outlook
3. Sustainability -
What can we
learn?
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