_Guiding ESG in real estate in APAC: the power of disclosure, alignment, and permeability
Historically, Asia-Pacific's real estate industry has been dominated by family-owned businesses. These are driven by relationship-based transactions and focused on short-term gains rather than long-term sustainability. As the sector shifts towards ESG integration, it presents challenges and opportunities, reflecting the region's diverse economic landscapes, climate conditions, and regulatory frameworks.
The regulatory landscape for ESG implementation in Asia-Pacific is diverse. Despite differences in disclosure specifics, numerous regulatory bodies across the region have introduced sustainability and climate reporting mandates for companies through local stock exchanges, securities and futures commissions, or monetary authorities.
What are the unique challenges facing the Asia-Pacific real estate market in ESG?
The Asia-Pacific real estate market faces several unique challenges in integrating ESG principles. These challenges stem from the region's diverse cultural nuances, and varying levels of regulatory development.
Economic and cultural diversity
Asia-Pacific encompasses both advanced economies and emerging markets, necessitating adaptable ESG strategies that meet the needs of different levels of economic development and regulatory environments.
Integrating global ESG standards with traditional Asian business practices requires a careful balance to maintain cultural sensitivity while promoting sustainability. This involves aligning ESG initiatives with deeply rooted cultural values emphasising community welfare and long-term sustainability.
Data and disclosure challenges
Many regional markets struggle with a lack of historical and comparable ESG data, making it difficult to assess progress and set effective targets. This data scarcity hinders the ability to make informed decisions and track improvements over time. The progress in ESG disclosure mandates also varies across countries, complicating efforts for multinational companies to maintain consistent reporting standards.
Climate risks and asset management
The region's diverse climate conditions necessitate location-specific vulnerability assessments and thorough asset due diligence. This is crucial for enhancing asset resilience against climate-related risks such as floods and forest fires. Real estate assets in coastal regions are particularly at risk from climate change impacts, which can affect property valuations and insurance premiums.
Implementation across the real estate lifecycle
A significant challenge is ensuring that ESG principles are genuinely integrated throughout the entire real estate lifecycle, not just at the corporate level. There is a risk of greenwashing if companies fail to implement their ESG commitments at the asset level across all stages of property development.
How can Asia-Pacific real estate enhance its resilience beyond compliance with ESG standards?
Companies are increasingly expanding their focus from environmental issues to include social and governance aspects of ESG. Integrating these principles involves balancing tradition with innovation, akin to yin and yang. As the sector evolves, it holds the potential to develop more sustainable, resilient, and socially responsible built environments that respect local cultures while aligning with global trends.
Proactive ESG reporting improves transparency and builds trust with local communities and investors, highlighting our dedication to responsible business practices. As countries increasingly adopt global standards such as those set by the International Sustainability Standards Board (ISSB), there is a clear move towards regulatory alignment that encourages consistency throughout the region. For private companies, especially multinational corporations (MNCs), recognising the significance of proactive reporting that extends beyond headquarters to include local implementations is crucial for strengthening resilience in the Asia-Pacific real estate sector.
Case studies: Call for action in managing the gap from mandates to a holistic implementation
1. From global ambition to local implementation
A significant challenge in implementing ESG initiatives is each country's dynamic and varied practices, making it difficult to ensure consistent messaging and implementation across all regions. This is particularly challenging for multinational corporations. Regulatory frameworks, cultural attitudes towards sustainability, and local market conditions differ widely, creating obstacles in aligning ESG efforts at a global scale.
The key to overcoming this challenge lies in influencing each local market effectively. Tailoring ESG strategies to fit regional contexts, engaging with local stakeholders, and adapting messages to resonate with specific cultural and regulatory environments will be crucial in driving meaningful impact and ensuring global ESG objectives are achieved.
At Knight Frank, we have a clear governance structure to help us embed ESG thinking into every level of the business and ensure everyone understands their responsibility in delivering our ESG ambition. Our Global ESG Alliance Group brings together our global partners to better align our ESG ambition across the global network and share examples of good practices and lessons learned.
An example of this collaborative approach can be seen in our work in Malaysia here.
2. From overview to asset level Implementation: Effectively managing ESG data in each real estate asset
The real estate industry is increasingly adopting advanced technological solutions to address ESG data management and reporting challenges. A growing trend in portfolio management involves leveraging centralised technology platforms that digitalise and automate the capture and reporting of ESG data across property portfolios. This approach aligns with evolving regulations such as listing rules and the Sustainable Finance Disclosure Regulation (SFDR).
These platforms often incorporate machine learning capabilities to track and analyse various ESG metrics, including Scope 1, 2, and 3 emissions and other sustainability-related data. The automation streamlines data management and ensures accurate, real-time reporting, enabling companies to meet compliance standards and make informed decisions about improving environmental performance.
Integrating such technology enhances transparency and accountability in real estate companies' ESG initiatives. It allows for more efficient monitoring of sustainability goals, facilitates better decision-making, and helps companies respond more effectively to stakeholder demands for ESG information.
As the industry continues to evolve, adopting such technology-driven solutions is likely become increasingly crucial for real estate companies aiming to stay competitive and meet the growing expectations for sustainable and responsible business practices.
The market offers various sophisticated platforms for those interested in exploring comprehensive ESG data management and reporting solutions for real estate portfolios. These solutions address the complex challenges of ESG implementation in the real estate sector.
One such example is Knight Frank's Verdig solution. This platform integrates the expertise of ESG experts with a proven technology that centralises, digitalises, and automates ESG data capture and reporting using machine learning.
Please contact Jackie Cheung, Director ESG, Asia-Pacific and Singapore, to find out more.