Asian real estate entities work hard to up their sustainability standards
Institutional investors are increasingly dictating higher sustainability standards at Asian real estate companies, in some cases shunning investments with lower ESG levels
Asian real estate companies and portfolio managers are working hard to raise the level of their sustainability performance often in response to strong demand from investors who now see environmental, social, and governance (ESG) as important investment themes.
And these efforts are bearing fruit based on the improved scores these enterprises have achieved on the Global Real Estate Sustainability Benchmark (GRESB), the leading evaluation system for measuring the sustainability performance of property companies and real estate funds.
In 2018, the number of participants in the GRESB increased by 6% to 903 property companies, real estate investment trusts (REITs), funds, and developers. In Asia, the regional average GRESB score increased from 63 in 2017 to 66 in 2018, demonstrating the improvements in overall sustainability performance.
"What we're seeing in the real averages of the scores is that Asia ex-Australia at 66 is performing well. They're in line with Europe. When you start to break it down within Asia, China may be doing a little worse than Japan so it averages out. China was in the high 50s and Japan was in the 70s (in GRESB scores). So you start to see the nuances of how investment managers are running their real estate portfolios from an ESG perspective," says Eric Duchon, managing director and global head of Sustainability at LaSalle Investment Management.
This means that Asian real estate entities and portfolio managers have been putting in place actual measures and platforms for improving their sustainability performance.
"This is very different from 10 years ago in Asia when ESG was pretty much talk and no action. But with GRESB you had to put some action behind the portfolio," says Tom Miller, senior managing director and head of development & sustainability – Asia Pacific at LaSalle Investment Management.
The trend towards improving sustainability performance is being pushed in a large part by institutional investors who have now embedded ESG compliance in their overall investment strategy.
"Investors that are looking at funds like ours are now asking: how are you doing with your GRESB scores. If you are in a bottom quintile with 1 or 2 Stars, you're not going to get a good mark and then you have some explaining to do. That has made everybody up their game throughout the industry," Duchon says.
Duchon, for example, was appointed in December 2016 to the newly-created position of global head for sustainability to work with the board and senior leadership on sustainability initiatives. He also has regional responsibilities in the Americas and chairs LaSalle's Global Sustainability Committee together with chief executive officer, Jeff Jacobson.
"Our global CEO became the head of the ESG committee in January. He's a line person, not somebody off to the side. The main guy who runs the whole business and all aspects now runs the ESG committee. This tends to keep everybody focused," Miller says.
Lasalle is also standardizing its environmental management system that helps it aggregate all the data and report on it.
"From our perspective, GRESB is a way to demonstrate both to the industry and to our clients that we take this seriously. But it's not necessarily our driver on the ground. Our drivers are asset specific: what is going to improve the investment performance of that asset? If that means investing in energy efficiency, that's what we're going to do," Duchon says.