REIT ASIAPAC
ESG
ESG
DOES ESG MATTER
TO THE BOTTOM LINE?
By Christian Bernasconi,
Managing Director, B&I Capital
more from asset managers to address climate risk. “The findings
offer a unique perspective and evidence base of the progress
being made to mainstream ESG within large institutions, and
that a strong platform exists for producing even greater positive
changes within the sector to accelerate the decarbonisation of
buildings and improve resiliency in alignment with the Paris
Climate Agreement,” says the UNEP FI, which launched the
report in August.
A separate research commissioned by HSBC revealed that nearly
50% of the businesses that the bank surveyed had ESG strategies.
T H E S U S TA I N A B I L I T Y P R E M I U M
Investors, meanwhile, are also inclined to place a premium on
sustainability. Notably, a Morgan Stanley survey showed that
72% of surveyed investors believe that companies with good ESG
practices can achieve higher profitability and are better long-
term investments.
ESG practices improve profitability. This strategy of combining
ESG requirements with investments and operations is a win-win
for investors who are looking for assets that are delivering both
social responsibility and income generation.
At B&I Capital, we first started formalising our ESG policies and
procedures about two years ago, but the process is a continuous
evolution.
The implementation of ESG standards have a direct impact on
a company’s financial performance as it optimises the firm’s
operating performances and reduces its overall operating costs.
Morgan Stanley’s sustainability assessment in 2015 cited
an instance where through a shift in focus on better ESG
implementation, one large technology firm saved US$422 million
and reduced electricity use by 5.8 billion kilowatt-hours over a
12-year period.
We conduct hundreds of one-on-one meetings with REITs
in our universe. These meetings give us the ability to assess
management in a way that third-party ESG rating firms cannot
as they often rely on self-reporting from the companies that they
assess.
in Assets Under Management (AUM) or around a quarter of all
professionally managed assets around the world.
Today, every fund manager is confronted with the question: “How
does your firm integrate environment, social and governance
(ESG) standards into your company and your investment
process?”
The Global ESG Real Estate Survey Results publication, a new
report authored by U.S. Bentall Kennedy, Canada’s RealPac and
the United Nations Environment Programme Finance Initiative
(UNEP FI), showed that the vast majority of respondents are
taking ESG considerations into account for acquisitions. The
report, which surveyed 40 respondents with an aggregate AUM
exceeding US$1 trillion, also revealed that ESG is used as a lever to
lower risk, and that tenants and owners are expected to demand
Like the U.S.-based National Association of Real Estate
Investment Trusts (NAREIT), we at B&I Capital define ESG as
environmental sustainability, social impact and good governance.
Over the years, we have seen companies advancing the ESG
agenda across their investment portfolios. A 2018 Forbes article
said that last year, ESG investing is estimated at over $20 trillion
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LOWERS RISK
Our assessments here at B&I make us believe
that REITs with the best corporate governance
will also voluntarily invest in their properties
to reduce environmental impacts. They will
also invest in their employees and will support
their communities as management teams
understand that sustainability will lead to strong
performance. These ESG frameworks translate
not only to reputational value but also to the
company’s bottom line.
As such, it makes good business sense to invest in ESG standards,
particularly for real estate companies in Asia. In Japan, LaSelle
LOGIPORT REIT announced earlier this year that two of its
properties have attained the highest certification rank of five
stars from the Japanese Building-Housing Energy-Efficiency
Labeling System. In Australia, Vicinity Centres is aiming for net
zero carbon by 2030 across its 34 wholly-owned shopping centres.
Singapore REITs are also not far behind. Fraser Centrepoint Trust
just completed its Global Real Estate Sustainability Benchmark
(GRESB) survey and will now be assessed by GRESB.
In August, Sembcorp Industries and Cache Logistics Trust
announced the successful completion of an 8.0 megawatt-peak
rooftop solar farm built, owned and operated by Sembcorp at
three logistics warehouses in Singapore owned by Cache.
According to the HSBC survey, ESG investments, on average,
perform at least 2% better than traditional products across four
measures: uptake or demand, financial returns, shareholder/
investor engagement and reputation.
CapitaLand also announced that it is installing around 20,000
solar panels atop six of its Singapore properties by the end of
2019. This could potentially be the largest combined rooftop
solar facility in the country by a real estate company.
While the B&I Capital board is very keen on a company’s direction
and reputation in our investment decisions, we also note that
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