The global real estate sector’s sustainability performance has hit a record high, with Asia showing marked improvements and Australia and New Zealand retaining their lead for the seventh consecutive year in the latest Global Real Estate Sustainability Benchmark (GRESB) results.
Headquartered in Amsterdam, GRESB assesses how real assets—namely real estate, energy, telecommunication, transport, water, and social infrastructure—are performing on environmental, social, and governance (ESG) indicators such as energy and water consumption, carbon emissions, employee satisfaction, health and safety, and the supply chain.
It then shares this data, as well as analytical tools to process the data, with institutional and retail investors including pension funds and insurance companies which represent more than US$17 trillion in capital.
GRESB has three separate assessments for the Real Estate, Real Estate Debt, and Infrastructure sectors, respectively. Its real estate assessment evaluates performance of property companies and funds against seven aspects of sustainability, including environmental performance, and how it sets and discloses sustainability policies.
It does so by giving companies a percentage score based on the number of criteria for sustainability performance indicators they satisfy.
The latest edition of its real estate assessment, released in multiple stages this month, analysed the performance of 850 property companies and real estate funds worldwide, representing 77,000 assets and US$3.7 trillion in value.
Globally, the real estate sector scored an average of 63 per cent, three points higher than last year’s performance.
It reduced energy consumption by 1.1 per cent, slashed emissions by 2.2 per cent, and cut water use by half a percentage point in 2017; this equates to 79,827 US homes, 113,000 passenger cars, and 999 Olympic swimming pools, respectively.
Asia stepping up
Asia also saw a greater number of companies participating in the GRESB survey than last year, and a better score. This year, 124 companies representing US$124 billion in assets reported their ESG performance to GRESB; the region’s performance was at par with the global average score of 63. In 2016, Asia’s GRESB score was 59.
The region also cut its energy use and carbon emissions by 0.8 per cent and 1.5 per cent respectively, although its water use increased slightly.
Ruben Langbroek, head of Asia Pacific, GRESB, noted that “this year’s results for the Asian real estate sector show that sustainability is increasingly being integrated with business strategy and execution, supporting the region’s efforts to create healthy working environments, efficient buildings, and sustainable and resilient communities and cities.”
“This positive transformation is being driven by investors,” Langbroek added. “They are not just requiring companies and funds to list ESG-related risks, but they are expecting them to explain how they’re managing these risks.”
Some of the highest scoring companies on GRESB’s Asia assessment were CapitaLand Limited and CapitaLand Mall Trust, which emerged as leaders in the Listed - Diversified and Listed - Retail categories, respectively.
While the sustainability performance of the real estate sector is on the rise globally and in Asia Pacific, Langbroek noted that that there is still room yet for growth improvement.
“The most important challenge for further improvements in Asia is a change in mindset,” he said. “The pace of improvement may be mediated by factors such as short-termism, and limited insights into the added value of sustainable buildings and portfolios.”
Langbroek added: “Stakeholders are expected to incorporate a long-term, holistic view on sustainability in order to establish a timely transition to a net zero carbon built environment.”
Retaining the lead
Australia and New Zealand, meanwhile, accounted for 66 of the total companies assessed, and US$164 billion in assets under management. The region performed better on GRESB’s performance indicators than the rest of the world, for the seventh year in a row. Its average score was 73, 10 points higher than the global average.
The number of companies in these two countries reporting to GRESB this year was a record high for the region, up from 55 firms last year.
This greater participation was the “direct result” of growing investor demand for information about ESG issues, as it helps them make better decisions about how to allocate their capital, said Langbroek
Langbroek added: “The region is already performing at a high standard” when it comes to disclosing sustainability performance to stakeholders; it has policies on diversity and equal opportunities, sustainability requirements in lease contracts with tenants, and community engagement programmes.
“Investor demand for transparency will further enhance how ESG-related risks are managed by Australian and New Zealand property companies and fund managers,” he noted.
But there is still scope to reduce the sector’s environmental footprint, Langbroek added. “Increased commitment from Australian policymakers is equally important, as it provides a clear incentive to advance to a net-zero carbon built environment.
The country’s leadership is currently debating whether to adopt a Clean Energy Target, a policy measure that would require energy generation to meet an emissions intensity threshold. The country’s chief scientist Alan Finkel recommended that the government adopts this scheme to balance energy demand with climate change concerns, but policymakers have yet to do so.
Romilly Madew, chief executive officer of industry association Green Building Council of Australia (GBCA), which administers the national Green Star building rating scheme, added that such certification programmes are deeply entrenched in the country’s real estate market.
The disclosure and transparency required for these certification schemes drives Australia’s green building sector, as do the Paris Agreement on climate change and the Sustainable Development Goals, she added.
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