Asian real estate investors catching up in ESG interest
67% of regional investors say they won't invest in a real estate fund without an ESG policy, surpassing American and European investors, according to PERE survey
Interest in environmental, social, and governance (ESG) investing among Asian real estate investors is fast catching up with the level of interest in the US and Europe as a result of increasing awareness and level of knowledge.
In Asia, the majority of investors (67%) will not invest in a real estate fund/fund manager that has no defined ESG policy. This is more than in the US (15%) and Europe (55%), according to a recent survey by PERE, a global publication tracking how the relationship between investment managers and investors drives equity capital into private real estate.
However, there are still more real estate institutions in Asia (44%) which do not have an explicit ESG policy when compared to the US (35%), and Europe (23%), according to the PERE survey.
“Asia lagged for some time but is catching up with a vengeance. Four or five years ago, except in Australia, which has long been a leader in ESG, we would hear a lot of nice-sounding platitudes but there were very few people moving ahead. Now attitudes and actions have changed dramatically,” says Tom Miller, senior managing director, and head of Development & Sustainability – Asia-Pacific at Lasalle Investment Management.
In Singapore, Japan, China, South Korea, and Hong Kong, there has been a push from investors and regulators to incorporate ESG into the investment process. As a result, real estate investors and fund managers have been responding positively.
In China, consumers have also been driving the increasing interest towards ESG investing, particularly for buyers of high-end residential properties who are now forcing property developers to pay attention to ESG-related issues.
In the Asia-Pacific, the most demanding investors in terms of ESG factors have been Australian and investors from outside the region, including Dutch investors.
“So far, Asian investors have been less pushy about ESG issues, but this is expected to change,” says Miller.
In both the Asia-Pacific and Europe, there is considerable variation between nations in the importance given to ESG measures. In the Asia-Pacific, Australia and Singapore are still clear leaders, while both China and Japan have been making rapid improvement.
Hong Kong, despite being a mature market, still lags when it comes to the implementation of ESG investing criteria. “Government policies tend to be more voluntary than not and while many developers talk about ESG issues and some are committed, others are not and that is probably because there is no real market perception that attending to ESG matters will help their bottom line,” Miller says.
When considering which ESG factor is most important for them, 60% of Asian investors who participated in the survey are concerned with governance issues, while 20% are concerned with environmental issues, and 20% with social issues, according to the PERE survey.
This is in contrast to European investors, of which 70% are concerned with environmental issues, 8% are concerned with social issues, and 22% with governance issues. In the US, 50% of investors are concerned with governance issues, while 25% are concerned with environmental issues and 25% with social issues.
“The governance aspect of private real estate is no less important but tends to be more static. In this area, industry bodies were established in the US and Europe earlier than in Asia, with Australia being an outlier in this region,” Miller says.
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