The Korea Times
For the 2015 Paris Agreement, a United Nations pact to fight the threats of the climate change crisis, to be fully realized, real asset sustainability is “crucial,” according to a global sustainability benchmark provider for over 100 institutional investors with over $22 trillion in assets under management.
To lower global carbon emissions and the global average temperature as agreed at the Conference of the Parties 21 (COP 21), buildings must be changed to curb or reduce emissions, said Ruben Langbroek, Asia Pacific head from GRESB (formerly known as the Global Real Estate Sustainability Benchmark). His comment targeted all stakeholders in the global real asset industry ― investors, financiers, real estate asset managers and developers.
His argument, which chimes with the United Nations Environment Program, comes amid the fact that built environments now contribute to almost 40 percent of the global carbon emissions. Meanwhile, GRESB’s environment-social-governance (ESG) benchmark report this year ― “2019 GRESB Real Estate Assessment” ― has covered 1,005 property companies and developers worldwide, with their total real asset values worth $4.5 trillion.
“As buildings get affected by more frequent extreme weather events, increasing real estate industry stakeholders address physical and regulatory risks in their investment portfolios and invest in solutions that provide positive environmental outcomes,” Langbroek told The Korea Times.
“Landlords who are most proactive about reducing carbon emissions from buildings while mitigating climate-related risks will be the most resilient and attractive to eco-responsible investors with long-term investment horizons. Those that fail to respond will risk being left behind.”
For the stakeholders to have higher awareness on real asset sustainability and ESG, stricter laws and building codes can create needed momentum. Various listing rules for property companies and energy efficiency requirements in Singapore, Hong Kong, Japan, the Philippines, India and Malaysia are good examples, according to Langbroek. So are the emissions trading schemes (EPS) markets in China, Japan and Korea and Singapore’s carbon tax system introduced earlier this year.
Elsewhere outside Asia, New York in last April passed a law that caps carbon emissions of the city’s about 50,000 buildings with gross area of around 2,300 square meters, and from 2024 will fine those by the amount exceeding the cap. The United Kingdom started in 2018 to prohibit leasing of all properties below a minimum energy efficiency standard.
“With the current needs to transition to a net-zero carbon economy and built environment, it is expected that there will be a further forceful set of policy responses to combat the climate crisis and align the goals of the Paris Agreement,” Langbroek said.
Such needs for stronger legislation to better implement the sustainability of real asset have changed the roles of institutional investors, pushing them to take account of ESG issues in investment processes. Policymakers thus must clarify investors’ obligations in relation to the integration of ESG issues into investment practice and ensure that these policies are implemented effectively, he said.
“This will result in making ESG performance disclosure the standard in Asian markets,” Langbroek said. “It will further drive property companies and funds to demonstrate and adopt best practices in ESG.”
With the significance of real asset sustainability in place, this year’s GREGB ESG benchmark report ranked Korea’s IGIS Asset Management at the top of Asia in the non-listed office section.
The Korean firm took into account not just financial benefits but also impacts on environment and society when mulling on property investment as ESG was becoming a “core” element in decision-making, according to IGIS.
GRESB said IGIS took “significant steps to manage ESG risks, identify opportunities and find ways to make positive real-world impact.” He added that the Korean firm showed regional leadership on aspects such as understanding and reducing the environmental footprint of their real estate portfolios.
Other than IGIS, the Korean government also increased its target emission reduction rate of the real estate sector from 18.1 percent to 32.7 percent by 2030. A new regulation to take effect in 2025 also mandates all new buildings to have zero-energy certification.
Korean entities in the private sector, however, still lag behind other countries in awareness on real asset sustainability and implementing it into practice.
Comparatively in other countries, global companies such as Google and Deutsche Bank are asking for green, energy-efficient buildings that are resilient and provide high indoor environmental quality. New York has set to reduce building carbon emissions by up to 80 percent by 2050.
In Australia, which led the world in scores in this year’s GRESB ESG benchmark report, property sectors regard superior ESG performance as a “proxy for quality.”
“In Australia, there is a pervasive spirit of collaboration and knowledge-sharing on environmental and social topics such as diversity and inclusion, health and well-being, operational waste treatment and tenant engagement,” Langbroek said.
“This unique combination of collaboration and competition has helped drive Australian real estate managers to higher levels of ESG performance year after year.”