Asia Pacific Real Estate Chief Sustainability Officer Survey

Having a CSO or Head of ESG is seen as essential

With the importance of sustainability and ESG continuing to gain prominence in the real estate industry, over 80% of sampled landlords and investors have established designated roles for such functions in Asia Pacific.

Global fund managers have more dedicated resources for ESG, with over 80% having personnel performing the role full time. Around one-third of landlords and developers require CSOs to perform other functions.

The CSO role is relatively new, with about half of positions established in the past three years. Investors, mainly fund managers, established such positions somewhat earlier than landlords as ESG emerged as a key factor in pitching for new capital.

Figure 1. Does your organisation have a designated Chief Sustainability Officer (CSO)/ Head of ESG?

 
Click to enlarge

Figure 2. When was the role established?

Click to enlarge

CSOs have a broad remit to track ESG project progress and enhance transparency

In response to the tighter regulation of sustainability-related disclosure, the primary focus of CSOs is ESG monitoring and reporting, as well as implementation of related projects.

CSOs are also responsible for fostering corporate change to promote and align with their company’s ESG goals. This includes assisting different business lines to develop ESG capabilities and accountability.

As many CSOs tend to focus on implementing internal corporate priorities, relatively fewer are engaged with lobbying policymakers on related policies. However, as the path to decarbonisation involves significant regulatory change and policy support, this is an area CSOs cannot overlook.

Figure 3. Key responsibilities of sustainability personnel in your organisation

Click to enlarge

Companies have a conservative attitude towards committing to new ESG resources

Slower economic growth is prompting companies to adopt a more cautious attitude towards committing new resources to ESG initiatives. Almost half of respondents have no plans to add new sustainability-related headcount in the coming two years.

Companies displayed different approaches towards ESG budgeting. About one-third expect to increase ESG budgets by more than 10% in the coming two years while another one-third intend to do so on a project basis. Singaporean respondents displayed the strongest appetite to increase budgets.

Given budget constraints, companies may consider outsourcing ESG projects to third-party consulting firms.

Figure 4. Growth plan for sustainability-dedicated headcount over the next two years

Click to enlarge

Figure 5. Budget plan on ESG or sustainability over the next two years

Click to enlarge

Most markets pledge to achieve net zero emissions in 2050

While most markets in Asia Pacific aim to reach net zero in 2050, the three largest markets by carbon emissions (mainland China, India and Indonesia) require an additional one to two decades to hit this milestone. However, the need to balance sustainability goals with economic objectives poses a significant challenge. Carbon emissions for the whole region have continued to rise since the Paris Agreement was signed in 2015.

Singapore continues to register steady growth in carbon emissions, partly due to its role as a transportation hub and hosting of advanced manufacturing industries. Emissions in Australia have also risen in the past two years, as compared with 2015 levels.

While carbon emissions in Hong Kong SAR have decreased significantly due to a decline in air traffic during the COVID-19 pandemic, a rebound is anticipated in 2023.

Figure 6. Carbon emission (rebased 2015 = 100)

Click to enlarge

2050 is the main deadline for asset owners to achieve net zero targets

About half of surveyed asset owners named 2050 as their target to achieve net zero, largely aligning with their country-level targets. However, many multinational occupiers are aiming to reach net zero by 2030.

This discrepancy is primarily because building materials and construction activity are carbon-intensive for asset owners, particularly developers. In contrast, professional services, financial institutions and software companies are relatively less carbon-intensive.

Although most asset owners stated that their progress towards achieving net zero is on schedule, many of their tenants’ deadlines are now just six years away. Asset owners are therefore expected to accelerate efforts to achieve net zero in the coming years to support their tenants’ sustainability goals.

Figure 7. Has your organisation set a net zero target?

Click to enlarge

Figure 8. Landlords' and investors' progress to achieving net zero

Click to enlarge

What is included in carbon emissions?

The scope of carbon emissions refers to activities covered in the calculations for net zero that lead to the overall balance of greenhouse gas (GHG).

In the realm of ESG reporting, scope 1 and 2 refer to emissions from a company’s direct operations, either in the form of consumption of fossil fuels or energy used (mainly electricity).

Scope 3 emissions are the most complex and challenging category to quantify. This category encompasses indirect emissions generated from a company’s upstream (to produce a company’s products or services) and downstream (for the use and disposal) activities. This extends far beyond an asset owner’s immediate control and includes activities from its suppliers, employees and tenants.

Top companies with CSOs are reporting Scope 1, 2 and 3 emissions

Despite the challenges involved in measuring scope 3 emissions, about half of landlords and investors claim that they measure all three scopes. However, several CSOs highlight the low transparency of key building materials from their suppliers, making scope 3 assessment difficult.

Although occupiers have set bolder targets to achieving net zero, their definition of carbon emissions is looser. A previous CBRE survey found 38% of global occupiers do not use scope categories when reporting carbon emissions.

While emissions from leased space should be reported by both landlords (under scope 3) and tenants (under scope 2), several CSOs stated that few tenants are willing to share such information. However, the growing adoption of green leases may improve transparency in the coming years.

Figure 9. Does your organisation report on its carbon emissions?

Click to enlarge

Infrastructure support & financial hurdles are major challenges

On the policy front, CSOs named the limitations of infrastructure as the biggest challenge for their company to achieving net zero. This largely relates to city electricity grids and accessibility to renewable energy. Respondents also highlighted the lack of policy incentives to help them decarbonise.

There also exist numerous financial hurdles. Amid the current uncertain economic environment, sustainability initiatives must compete for budget allocations with other business priorities. A lack of evidence around costs and benefits is also hindering companies’ commitment to ESG initiatives.

Just 3% of respondents said they lacked support from the C-suite, reflecting senior leaders’ strong commitment to setting and achieving decarbonisation targets.

Figure 10. What are the main challenges for your organisation to achieve net zero emissions?

Click to enlarge

How green is Asia Pacific’s electricity grid?

Several respondents highlighted that regardless of the energy savings they achieve, their impact on carbon emissions ultimately rests upon the carbon intensity of the city’s electricity grid. City infrastructure was therefore named as the biggest challenge for achieving net zero.

The carbon intensity (amount of CO2 produced per unit of electricity) of Asia Pacific’s electricity grid is much higher than Europe and the US, posing a challenge for companies targetting net zero.

Several Asia Pacific markets are phasing out the use of coal for electricity generation and are stepping up investment in renewable energy infrastructure. These include mainland China, Japan and Korea, all of which have achieved a significant reduction in carbon intensity.

Figure 11. Carbon intensity of electricity for Asia Pacific major markets

Click to enlarge

Energy efficiency is crucial for achieving net zero

With carbon-intensive electricity grids posing a challenge, landlords largely rely on energy savings to achieve net zero.

To improve efficiency, landlords are willing to adopt the latest technologies and practices for existing and new properties. As many older buildings are still using gas for heating and cooking, property owners are advised to evaluate options to electrify such buildings by retrofitting and replacing heating systems.

Asset owners also realise the importance of increasing the adoption of renewable energy. However, onsite generation can only account for a low percentage of consumption.

Figure 12. How does your organization intend to achieve its net zero target for its real estate operations?

Click to enlarge

Sustainability certifications in Asia Pacific

Click to enlarge

Adoption of green-certified buildings is accelerating

The coming three years will see asset owners in Asia Pacific prioritise and increase the inclusion of green buildings within their portfolios.

Property owners’ participation in sustainability benchmarking will continue to grow, with over 60% of respondents projecting that more than 80% of their portfolios will be green in three years' time.

Figure 13. Regarding your organisation's current real estate portfolio and that in the coming three years, what percentage of it will participate in sustainability benchmarking and ratings in terms of total amount of floorspace?

Click to enlarge

Availability of green office space lags market demand

Green building adoption in Asia Pacific stood at 44% as of November 2023. Australia was the only market to achieve an adoption rate of 80%, a target that respondents aim to achieve within the next three years.

Japan and Singapore are nearing the 80% target, with adoption in the latter set to receive a boost from the recent introduction of regulations requiring all new buildings to be green.

While adoption in mainland China lags, intense competition for tenants will spur landlords to boost ESG compliance. In Hong Kong SAR, leading landlords have largely achieved an adoption rate of over 80%.

The ongoing demand-supply gap in Asia Pacific is expected to encourage real estate developers to create more green buildings.

Figure 14. Percentage of green-certified office stock per total office stock by markets (in terms of floor space)

Click to enlarge

Green finance has been adopted by 75% of asset owners

Green financing plays an important role in facilitating projects that help achieve sustainable goals. Asset owners have widely adopted green financing for capital-heavy construction and acquisition of green buildings, with US$21 billion of green bonds issued for property-related projects in 2022 in Asia Pacific.

Sustainability-Linked Bonds (SLBs) are also proliferating. SLBs are designed to link the bond’s financial terms to the issuer’s sustainability performance. However, several respondents noted that the interest rate differential between SLBs and general bonds is becoming less attractive under the high interest rate environment.

Figure 15. In which of the following areas does your organisation use green finance?

Click to enlarge

Adoption of DEI is growing slowly

While Diversity, Equity and Inclusion (DEI) criteria lack mainstream adoption in Asia Pacific region, international investors demonstrated a higher level of focus and concern regarding this field.

Among respondents, those in Australia were most actively engaged in promoting DEI through corporate strategies and policies.

Figure 16. What is your company's approach towards Diversity, Equity and Inclusion (DEi) and community?

Click to enlarge

Placemaking the focus of DEI and community initiatives

Most respondents factor DEI criteria into corporate strategy. In terms of real estate, the focus is on placemaking initiatives such as providing facilities for people with special needs or amenities for the public.

Relatively lower priority is given to developing housing for underprivileged groups or introducing tenant inclusion policies to support social or non-profit organisations.

While government concessions may help facilitate the adoption of DEI and creation of community facilities, the industry lacks impetus to lobby the government to provide relevant incentives.

Figure 17. As a real estate landlord/investor, what do you do to promote diversity, equity and inclusion (DEI) and community? (Multiple answers can be selected)

Click to enlarge

Balancing business aspirations and sustainability is a key concern

As economic growth slows, balancing business aspirations and ESG was named as the main concern regarding ESG implementation. With ESG initiatives still viewed as expenses, several CSOs highlighted the need to promote greater awareness of the long-term benefits that ESG has on corporate branding, talent attraction and climate risk mitigation.

CSOs also indicated concern regarding preparedness for future regulatory changes. In addition, the survey found asset owners are still at a nascent stage of assessing the risk that climate related disasters pose to their portfolios, indicating that greater focus is needed in the coming years.

Figure 18. What are your top concerns regarding ESG in the coming five years?

Click to enlarge

Landlords and tenants share the same responsibility

While occupiers have more aggressive targets for achieving net zero, asset owners must align their ESG strategies with their tenants’ sustainability goals.

Mutual collaboration between landlords and tenants is therefore essential to accelerating the transition to a net zero environment.

While CSOs highlighted the need to incorporate green lease clauses to drive a common agenda with tenants, they still face hurdles relating to data sharing and the acceptance of legal consequences if either party fails to achieve its targets.

Figure 19. How would you describe your responsibility initiatives with regard to landlord-tenant relations?

Click to enlarge

Recommended strategies

The Asia Pacific Real Estate Chief Sustainability Officer (CSO) Survey was conducted between 1st September to 20th October 2023.

In this survey, “landlords” refer to real estate companies that own and lease out properties to tenants, while “investors” refer to companies that purchase real estate properties with the primary goal of generating a return on investment.

Highlight of Responses

• US$200 Billion of investors assets under management (AUM) in Asia Pacific
  (AUM) in Asia Pacific
• US$245 Billion of market capitalisation