Japanese, Australian cities lead the way in CBRE’s APAC sustainability ranking
CBRE has issued its Asia Pacific Sustainable City Ranking that measures the environmental resilience of 28 cities in the region and their impact on commercial real estate.
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From Beijing to Brisbane, cities in the Asia Pacific region have made various levels of commitments to decarbonisation in spite of mixed results. For investors and companies that want to reduce the carbon footprint of their real estate portfolio that has exposure to multiple cities, it is important to know how well different cities perform in terms of sustainable development.
The level of sustainable development of a city can be measured across several factors, including carbon targets, transition risk, physical climate risk, water stress, air pollution, renewable energy, green bond issuance and green building adoption, according to the CBRE report.
“The report provides a robust analysis of the sustainability performance of different cities on a granular level, and is handy for institutional investors and listed companies that have set decarbonisation goals and regularly disclose their progress,” says Ada Choi, Head of Occupier Research & Head of Data Intelligence and Management for Asia Pacific at CBRE.
“Unlike the EU, where there are more stringent, unified sustainability standards, data transparency and integrity and reporting standards vary across Asia Pacific markets. An institutional investor based in Europe, for example, might not know where they should look if they are specifically looking for this information in each Asian city, but this report can help serve as a guide,” says Su-Fern Tan, Head of ESG for the Pacific Region at CBRE.
Japanese and Australian cities ahead of the pack
At the regional level, Japanese cities, including Osaka and Tokyo and Australian cities, including Brisbane, Canberra, Melbourne, Sydney and Perth, rank the highest. Both markets have a high level of green building adoption, are increasingly adopting renewable energy, and face less physical climate risk.
Average green building adoption in Asia Pacific reached 43% this year, with the rate for new buildings rising to 63%. Singapore is one of the surveyed cities with high green building adoption. Bounded by government regulations, all new buildings in Singapore must be green-certified. However, the city state’s improvement in sustainability is limited by its geography – high water stress, minimal renewable energy generation and continued growth in carbon emissions from air transportation.
Hong Kong ranks closely behind Singapore in overall performance, but the special administrative region has a higher score in green bond issuance. According to the Green Bond Report 2022 released by the Hong Kong government, by the end of July, the city had successfully issued government green bonds totalling close to US$10 billion equivalent. Singapore only entered the green bond market in August with its debut sale of US$1.7 billion in 50-year notes.
“Having said that, most of the proceeds raised from green bonds issued in Hong Kong actually go to projects in mainland China. When we compare the actual proceeds used in real estate projects in both Hong Kong and Singapore only, the figures for both cities are actually very close,” Choi remarks.
Extreme climate conditions pose bigger challenges to certain cities due to their geographical landscape. Among them, Manila has the highest physical climate risk, with 45% of cumulative GDP at risk during 2015-2025. Real estate investors and occupiers are advised to prepare for building resilience and insurance budgets against such threats.
Movement towards standardised ESG reporting for real estate
The objective of ESG reporting is to encourage mindful environmental, social and governance practices by companies to optimise their business for investors and society at large. Given the real estate industry’s current lack of ESG reporting standardisation for Asia Pacific as a whole, it remains difficult for investors and listed companies to report the sustainability performance of their regional portfolio in a standardised way, says Tan.
To help bridge this gap, CBRE Investment Management has formulated a tool to measure the performance of real estate assets on an individual basis. The metrics include energy usage, waste, greenhouse gas emissions and water management to complement the Global Real Estate Sustainability Benchmark (GRESB).
To lead by example, CBRE has also committed to an industry-leading target for emission reductions in the facilities and properties it manages around the world (Scope 3). CBRE will curb emissions in facilities it manages for occupiers worldwide by 79% per square foot by 2035. For properties it manages, CBRE will reduce emissions by 67% per square foot over the same timeframe.
Promoting green leases to drive occupier-landlord collaboration
Among the growing adoption of many sustainability practices, green leases remain something of a rarity in the region. A green lease is a lease which incorporates clauses where the owner and the occupier fulfil specific responsibilities so that their property or business can operate sustainably.
“Green leases involve landlords and tenants in a mutually beneficial method of creating sustainable business operations. Both parties can reap the rewards of their work together,” says Tan. “Currently, most are hesitant about green leases because they think they could have major legal ramifications and that misunderstanding is a major barrier. The good news is that it doesn’t need to be this way.”
As long as the leasing relationship and physical characteristics of the building and the sustainability objectives are straightforward, a green lease can be structured as a simple addendum to a traditional lease, says Choi. The addendum clauses are not legally binding but are rather a flexible and less onerous way for both parties to agree on joint actions, she explains.
Playing multiple roles as agencies, asset managers and property managers, CBRE is actively promoting green leases to improve the sustainability performance of its properties by collaborating with tenants and landlords. “We see a natural alignment between our services and green leases,” says Choi. “Our focus is not only on maximising the return from every asset, but we can also help tenants and landlords reduce their carbon footprint by structuring an evolving model with carbon-reduction targets for the facility.”