Building towards Net Zero

What has been your experience regarding decarbonizing your own building portfolio?

A distinction must be made between the operation of properties and their construction. The operation of properties involves switching energy sources for heating and cooling buildings, as well as electricity, to renewable sources and reducing overall energy consumption. In construction, it is important to optimize resource consumption, use materials with as little embodied emissions as possible, and consider aspects of the circular economy. Zug Estates recognized the necessity of decarbonization very early on. During the construction of our Suurstoffi site that started 15 years ago there was a strong focus on developing sustainable, operationally CO₂ neutral buildings. Furthermore, practically all our properties in the city of Zug are connected to the lake water network. District heating networks have the advantage that they allow large-scale solutions to which many landowners can connect. If the energy source is water, the network can also be used to cool commercial spaces. All our properties in Zug, including the Metalli shopping mall, as well as our hotel properties, are heated and cooled with the energy of lake water. These measures allow us to operate our entire real estate portfolio with almost no greenhouse gas emissions.

Is Switzerland particularly well-suited to district solutions?

Switzerland is well positioned because we have local energy suppliers who are tackling this issue and are increasingly building energy networks. Likewise, our legal framework allowed the use of water as an energy source early on, which makes a lot of sense because we have many usable water sources.

What is the key to decarbonizing existing buildings?

The technical solutions for switching to renewable energy sources are well known. The key to unlocking building upgrades is a matter of finding the right timing so that the measures can be combined with renewal cycles or development measures and thus implemented in an economical and resource-efficient way. The problem is that renovation cycles are typically about 40 years, so buildings erected 15–20 years ago, unlike new buildings, are not low carbon, but are also not near the point they would naturally be renewed.

How important are subsidies when upgrading existing buildings?

Subsidies can help improve the profitability of renovation measures and lead to energy-efficient renovations being implemented earlier. Decarbonization measures are typically more economically difficult to implement in peripheral locations, as there is limited potential for increasing rents and hence profitability is often not a given. In central locations with a corresponding demand density, renovation projects can be mapped more easily.

What role do tightening regulations play in building decarbonization?

Regulation has a significant impact on decarbonization. For institutional real estate investors, the reporting obligations and the transparency desired by shareholders have led to a focus on reducing operational emissions and formulating credible emission reduction plans. Without such external pressure, many building owners might wait 20, 30, 40 years to upgrade their buildings. However, there is also a risk that the pressure to optimize emissions will lead to institutional investors selling properties with high emissions to investors who are not obliged to report, instead of implementing appropriate restructuring measures.

The interviewee is external to UBS and the answers provided do not necessarily reflect UBS’s view.

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