Property Energy Efficiency and Financial Performance: Evidence from Swiss Real Estate Fund Portfolios

Swiss real estate (RE) funds are pivotal in advancing Switzerland’s climate neutrality goals amid increasing regulatory pressures to reduce carbon emissions. With over 70% of fund-owned buildings constructed before 2000 and a continued reliance on fossil fuel-based heating, energy efficiency remains a key challenge. This study examines the energy performance of Swiss RE funds by analyzing building-level data, including U-values of walls, roofs, floors, and windows, alongside heating system types. By compiling a novel and highly granular dataset covering more than 9,000 buildings, extracted from real estate fund reports, the Swiss Building and Housing Register (GWR), and Cantonal Energy Performance Certificates (GEAK), we assess whether energy efficiency influences financial performance and property valuation. Regression analyses reveal that fund-level Sharpe Ratios are unaffected by energy efficiency or heating types, suggesting that investors do not price energy-related factors into RE funds. Larger funds tend to hold buildings with lower energy efficiency, contrary to expectations that more sizable or modern portfolios would exhibit better sustainability performance. Furthermore, buildings with higher thermal transmittance values (indicating poorer energy efficiency) tend to have higher market valuations, except for windows, where better insulation is positively correlated with value. No significant relationship is found between heating systems and property valuations. By bridging the gap between portfolio-level data and granular building metrics, this study provides clear guidance to enhance transparency in sustainable investment strategies, and support Switzerland’s transition to a net-zero real estate sector.