From Buildings to Balance Sheets: How Property Quality Creates ESG Value in Real Estate

Executive Summary

Does ESG quality drive financial returns in Swiss real estate? We study this question using PRESS scores for 420 vehicle-period observations between December 2022 and June 2025.

We find that environmental practices create tangible operational value. Higher ESG scores predict 2.0 percentage points (pp) higher operating margins, driven entirely by environmental factors that directly reduce costs, while social and governance practices show no financial impact.

Markets recognize these fundamentals: ESG scores predict 1.3% higher 6-month forward returns. Yet despite margin improvements, return on invested capital and return on equity show no ESG effect overall, indicating that compliance expenses and green capital expenditures offset the operational gains.

Fund structure determines monetization in accounting profitability. Listed funds capture value through higher profitability (about +0.4 pp ROIC and +0.7 pp ROE per ESG point), while unlisted funds see margin improvements (+3.9 pp) without profitability translation. Foundations show no statistically significant effects. Real estate companies show patterns consistent with listed funds, though small sample size limits conclusive analysis.

These findings have distinct implications by stakeholder. For performance-focused investors in listed funds (and provisionally real estate companies), ESG can serve as a performance factor, while values-driven investors in other structures can pursue ESG mandates primarily for alignment objectives. For policymakers, emphasizing building-level metrics over fund-level disclosures may help reduce greenwashing and sharpen incentives for genuine environmental improvement.