Concrete Analysis | Why Hong Kong landlords, developers and asset managers cannot ignore ESG standards

In the region’s real estate markets, Hong Kong is among the front runners in the area of sustainability, with China making swift progress, but Asia-Pacific lags behind Europe and the US

Many real estate industry participants in Hong Kong have yet to set out their net-zero pathways and get to grips with the Science Based Targets initiative (SBTi)

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A construction site in Beijing. The importance of Asia-Pacific’s real estate markets to sustainability is underlined by the fact that the region now accounts for 20 out of the world’s 36 megacities with populations of more than 10 million. Its urban population is set to grow further, from 2.3 billion in 2019 to nearly 3.5 billion by 2050, a 52 per cent increase. Photo: Bloomberg

Published: 12:00pm, 28 Jun 2022

We have been hearing a lot more about environmental, social and governance (ESG) standards in the real estate industry over the past few years, but the concepts that lie behind them have been germinating for decades.

The origins of ESG lie in the rise of socially responsible investing in the 1980s, while the term itself was first coined in 2005 in a UN commissioned report from law firm Freshfields Bruckhaus Deringer.

According to the United Nations Environment Programme, building operations accounted for about 31 per cent of global final energy consumption and 28 per cent of energy related carbon dioxide emissions in 2020.

A growing appreciation of the important role that real estate can play in mitigating climate change has prompted the industry to take ESG much more seriously across the entire life cycle of a property. In our experience, in the region’s real estate markets, Australia, Hong Kong, Japan, New Zealand and Singapore are the front runners in the area of sustainability, with China and Vietnam making swift progress. Broadly though, Asia-Pacific lags Europe and the US and faces issues such as inertia, capital cost, insufficient policy impetus and inadequate access to green energy and construction materials, which are hindering the wider adoption of ESG standards.

The importance of Asia-Pacific’s real estate markets to sustainability is underlined by the fact that the region now accounts for 20 out of the world’s 36 megacities with populations of more than 10 million. The region’s urban population is set to grow further from 2.3 billion in 2019 to nearly 3.5 billion by 2050, a 52 per cent increase. Rising urban populations mean more real estate and according to the International Energy Agency, Asia-Pacific will see the greatest rise in stock across all property sectors globally, with a 65 per cent increase by 2050 led by Asean, China and India.

While the spike in supply implies a steep rise in embedded and operational carbon, on the plus side the region also has huge potential to promote sustainability and develop new technologies to combat climate change.