CLIMATE CHANGE RESILIENCE Due to the rapidly changing conditions resulting from climate change and scarcity of resources from overconsumption, it is in the best interests of everyone including businesses to work together and resolve this global crisis. ESR has formally supported the Paris Agreement since 2020 to address these issues, which was ratified by 187 nations with the objective of keeping global warming within 1.5 degrees Celsius of preindustrial levels. By transitioning to low carbon solutions to meet the Paris Agreement, we plan to align our climate risk assessments and disclosures of the Group with the Recommendations from the Taskforce for Climate-related Financial Disclosures (TCFD) by 2025. For Australia in particular, a climate risk assessment framework was developed using weather data, climate modelling and online mapping tools that have been incorporated into the existing Environmental Management System (EMS). Day-to-day asset and property management decisions and reporting are made accordingly based on the assessments performed. In the current year, we have engaged MSCI, an investment research firm providing stock indexes, portfolio risk and performance analytics to conduct forward-looking and return-based valuation assessment that will measure climate related risks and opportunities in our portfolio. Through this assessment, the associated transitional risks relating to regulatory and technological developments and physical risks can be identified and evaluated across various scenarios at the portfolio and asset level. An appropriate comprehensive risk management framework is then formulated to address those risks accordingly. MSCI has performed the Climate Value-at-Risk Real Estate Portfolio Analysis for the major regions of ESR being Australia, China, India, Japan and South Korea. Assets categorised as riskiest by overall physical risk and overall policy risk were identified. The table below illustrates the types of climate risks relevant to ESR as follows: Type of Climate Risk Specific Risk Description Physical Extreme weather events (coastal flooding, fluvial flooding, extreme cold, extreme heat and tropical cyclones) Properties located in regions with frequent extreme weather events are subject to more damage and higher risk of human endangerment. As such, ESR shall have appropriate safety measures to address this risk and minimise harm to its tenants. Type of Climate Risk Specific Risk Description Transitional Policy risk Reputational risk Extensive regulatory and policy changes are required to achieve a low-carbon economy, which affects the overall operations of the business. Non-compliance will adversely affect the reputation and reliability of any real asset manager. It is vital for ESR to continually transition to renewable energy sources (i.e. solar, wind and hydro), reduce carbon emissions and incorporate innovative, sustainable designs in its properties to maintain our competitiveness in the industry. Biodiversity is also a crucial element in maintaining the overall health of the earth. As such, ESR prioritises in reducing the impact of its operational activities on biodiversity and the environment through various means including sustainability development and practices on brownfield sites. Enhancement of biodiversity is being considered when designing our properties by incorporating wetlands and parks and preserving a variety of fauna in the surroundings. Preserved forest area at ESR Yokohama Sachiura Distribution Centre 1 ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT 2021 29 PILLAR 2: PROPERTY PORTFOLIO
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