Trends Report
ESG at ESR: Space and Investment Solutions for a Sustainable Future
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Imagine a future where real asset investments not only deliver financial returns but contribute to a healthier planet and stronger communities. This is the power of embedding Environmental, Social, and Governance (ESG) considerations in real asset investments – a paradigm shift in the global real asset landscape, and it is here to stay.
With ESG impacting how companies conduct their business today, ESG considerations are now integrated throughout each stage of the whole asset lifecycle. As APAC’s leading real asset manager powered by the New Economy and one of the largest listed real estate investment managers, ESR Group Limited (ESR Group) seeks to be the thought leader which proactively sets the standard and lays the foundation for a sustainable future.
To understand ESG at a deeper level, we need to know the meaning of ESG investing and integration, and why companies and their investors should care. Let’s take a deeper dive!
The Rise of ESG Investing
A 2022 PwC report found that ESG-focused institutional investment in the Asia-Pacific region is experiencing the fastest percentage growth, projected to triple and reach US$3.3 trillion by 2026. This surge is part of a broader global shift towards sustainable investing, with ESG-oriented assets under management expected to grow to US$33.9 trillion by 2026, representing 21.5% of total assets under management globally.
This rise of ESG investing can be attributed to the increased awareness of global sustainability challenges, such as climate change and social inequality. To mitigate risks and contribute to a more sustainable future, investors are now increasingly recognising the need to incorporate ESG factors into their investing strategies.
Think of ESG as a Three-Pronged Approach to Responsible Investment
ESG investing refers to investing in companies that score highly on environmental, social, and governance-related metrics in addition to traditional financial metrics.
Environmental
Evaluates how a company impacts the environment. In real estate, this refers to an asset’s environmental impact, including energy use, carbon emissions, water, waste and pollution management, climate change resilience, commitment to sustainable practices, and compliance with environmental laws and regulations.
Social
Assesses how a company manages relationships with its stakeholders including employees, tenants, suppliers, investors and the communities where it operates. This includes their approach to safety, health and well-being, diversity, equity and inclusion practices at all levels, and their commitment to creating positive social impact.
Governance
This assesses a company’s overall corporate governance through its management structure and business processes, to ensure accountability, transparency, fairness and integrity. Strong governance entails ethical and diverse leadership, accurate and transparent reporting, robust risk management practices, and responsible decision-making.
At ESR Group, we pursue strategic initiatives to advance our commitments to environmental stewardship, social responsibility and strong governance in alignment with our ESG Vision, Mission, Framework and 2030 Roadmap.
How Do We Assess and Benchmark ESG Performance?
ESG reporting provides a platform for companies to disclose and report on their ESG performance against targets and communicate their ESG efforts and achievements to stakeholders, particularly investors and regulators. These reports help companies demonstrate credibility and measurable progress of their ESG efforts. ESG reports may present both financial and non-financial data that are aligned with globally recognised ESG frameworks, standards and industry best practices, such as the Global Reporting Initiative (GRI), United Nations’ Principles for Responsible Investment (UN PRI), and the International Financial Reporting Standards (IFRS) on climate disclosures.
While there is no universal ESG scoring system, established third-party ESG benchmarks and ratings, such as GRESB, ISS, MSCI, and Morningstar Sustainalytics provide companies and investors with frameworks for disclosing and evaluating ESG performance against best practices aligned with market expectations and investor interests. These ESG benchmarks and ratings consider global ESG commitments, such as the United Nations’ Sustainable Development Goals (SDGs), and serve as guiding principles to ensure coherence, comparability, and consistency in ESG disclosures. By analysing data provided by companies and comparing it against metrics set out in these ESG frameworks and standards, ESG rating agencies assign ESG scores based on the companies’ performance against these metrics, with higher scores reflecting stronger commitment to ESG principles. Here is a non-exhaustive list of factors considered within the three pillars of ESG:
- Environmental: Net-zero and decarbonisation; Water and waste management; Climate change adaptation; Sustainable supply chain.
- Social: Diversity, equity and inclusion; Safety, health and well-being; Human rights; Community investment and social impact.
- Governance: Board diversity and structure; Risk management; Responsible investment; Transparent ESG reporting and disclosure.
As one of the market leaders, ESR Group actively participates in various global ESG benchmarks and ratings to assess performance against industry standards, identify areas for improvement, and enhance disclosures for transparency.
So, Why is ESG Important for Investors?
Because it is not just about doing good – it is about long-term sustainability and business profitability.
Real assets have a significant environmental footprint, accounting for nearly 40% of global carbon emissions. To address these sustainability challenges present in the real estate industry, ESG factors are becoming increasingly critical in any investment strategy. Thus, integrating ESG considerations into investment strategies presents opportunities and unlocks a multitude of benefits:
- Meeting Tenants’ ESG Demand for Enhanced Investment Value: Increased environmental awareness by customers is driving a surge in demand for sustainable business products. For example, tenants are now actively seeking certified assets and green leases that align with their own sustainability goals and ESG requirements. Real asset companies with strong ESG practices and certified sustainable assets are well-positioned to attract and retain high-quality tenants in this competitive market. This means increased occupancy rates and potentially higher rental income and returns on investment for investors.
- Complying with Regulatory Requirements and Risk Mitigation: More stringent sustainability regulations are being implemented worldwide, as countries and governments strive to deliver on their global commitments. By prioritising ESG, investors can ensure that their investments comply with laws and regulations, avoiding potential penalties. Additionally, an emphasis on sustainability enables investors to identify and mitigate climate-related risks that could disrupt operations and negatively impact asset value. Hence, a proactive stance on ESG helps to future-proof investments for long-term stability and sustainable returns.
- Aligning Priorities and Values with Investment Portfolio: Many investors seek to align their investment decisions with their personal priorities shaped by environmental and societal values and religious beliefs. For instance, investors are increasingly taking a proactive approach when it comes to due diligence to ensure that their investments do not violate human rights nor contribute to greater carbon emissions. Thus, ESG scores from globally recognised benchmarks and ratings provide insights into a company’s commitment and performance in these areas, allowing investors to support businesses that prioritise sustainable and responsible practices.
- Reputation and Brand Value: Companies with strong ESG practices often enjoy better reputation and stronger brand loyalty. Companies that effectively integrate ESG factors stand to gain a competitive edge in attracting capital and identifying sustainability-focused investment opportunities.
ESG @ ESR
In recognising the importance, ESR Group integrates ESG considerations into every aspect of its three core business areas – Investment, Fund Management and New Economy Development, through implementing best practices, setting up goals and monitoring performance. We seek to facilitate continuous improvements across each market where we operate and throughout each stage of the whole asset life cycle.
At ESR Group, we showcase that we are not just “Talking” about ESG, but also “Walking the Talk”.
Building the Foundation Blocks
In 2019, ESR Group solidified its commitment to sustainability by developing a Group ESG Policy and establishing our ESG Framework consisting of the three key pillars: Human Centric, Property Portfolio and Corporate Performance. Aligned to six of the SDGs from the UN 2030 Agenda, the UN PRI, as well as global ESG frameworks, standards and industry best practices, we have mapped our ESG approach to these global commitments to guide our business strategies towards desired sustainability outcomes. Our ESG Framework, built upon our ESG Vision and Mission, guides our actions as follows:
ESG VISION
We aspire to be a leading provider of Space and Investment Solutions for Sustainable Future.
ESG MISSION
To drive long-term sustainable growth of the business by creating positive impact on the environment, our stakeholders, and the communities around us.
Pillar 1: Human centric
We believe that basic human needs are universal and meeting those needs is the cornerstone of sustainable development.
These are the five focus areas under this social pillar.
- Stakeholder Engagement: Conduct engagement initiatives with our stakeholders such as investors, business partners, tenants and communities to enhance our deliverables.
- Safety, Health & Well-being: Maintain a safe working environment by achieving Zero ESR Workforce Fatalities and promoting the holistic well-being of our people.
- Managing & Developing Talent: Aspire to be an Employer of Choice and drive an employee engagement programme with a strong focus on workplace satisfaction, talent retention and training.
- Diversity, Equity & Inclusion: Commit to fostering workplaces that embrace diversity and are free from discrimination and achieve a gender ratio target as part of the overall diversity & inclusion plan with monitoring actions and progress.
- Community Investment: Enhance community involvement and philanthropic activities through a series of planned activities involving our stakeholders.
Pillar 2: Property Portfolio
We are committed to environmental stewardship by developing and maintaining sustainable and efficient buildings. The five focus areas under this environmental pillar are:
- Sustainable & Efficient Operations: Maximise the generation of renewable energy from our properties’ roof space, being the largest in APAC, and pursue potential business initiatives which focus on the funding and managing of green energy. Pursue a structured and well-planned decarbonisation plan for the entire portfolio in the longer term, with milestone targets.
- Sustainable Building Certifications: Increase sustainable building certifications and ratings across all markets and accelerate in green financing to support continued business growth and align our portfolio towards facilitating transition to a low-carbon economy.
- Climate Change Resilience: Manage and mitigate climate-related risks and assess the impact of the future cost of climate change to the business, in alignment with the core elements of the Taskforce on Climate-related Financial Disclosures (TCFD) — now under the purview of the International Sustainability Standards Board (ISSB).
- Flexible & Adaptable Properties: Design, construct, and maintain the Group’s assets to reduce material degradation.
- Strategic Locations: Build assets in strategic locations, with a sustainability focus on-site selection, efficient design, green construction, and energy-efficient operations.
Pillar 3: Corporate Performance
We believe strong corporate performance is the foundation of long-term sustainable growth and stability. Under this governance pillar, we emphasise on the following five focus areas:
- Corporate Governance: Maintain the highest standards of corporate governance throughout the Group, with strong core values and business ethics.
- Risk Management: Conduct a holistic risk management process to focus on strategic, financial, operational, technology and compliance risks, which cover sustainability and climate change factors, amongst others, to enable more informed business decisions.
- Responsible Investment: Commit to the UN PRI as a signatory and adopt its investment and asset management policies to enhance transparency and demonstrate our commitment to including ESG factors in investment decision making and ownership.
- Disclosure & Reporting: Actively participate in globally recognised ESG benchmarks and ratings to measure our ESG performance and disclosures against industry peers.
- Supply Chain Management: Incorporate ESG considerations as part of supply chain management on areas relating to sustainable procurement, operational resilience, and sustainability performance of suppliers. This focus area was added in 2022.
In November 2020 we established our inaugural ESG 2025 Roadmap “Building for the New Economy”. This roadmap and targets were then refreshed and enhanced in 2023 to the ESG 2030 Roadmap, “Accelerating Positive Impact for a Sustainable Future”, to align with business growth. This reaffirmed ESR Group’s commitment to long-term sustainable growth by setting out a clear vision with nine targets across the three key pillars of our ESG Framework highlighted above.
Putting ESG into Action
To ensure our ESG Framework translates into real impact, we have implemented several key initiatives:
- ESG Investment Checklist: Established in January 2022, this checklist is an assessment of ESG requirements by fund investors covering climate-related risks, building certifications, renewable energy adoption, material sourcing and sustainable procurement, building technical assessments and environmental management systems, energy, water and waste management efficiencies and occupier considerations, amongst other factors, where applicable. Through this checklist, we integrate ESG considerations in our due diligence for better decision making and risk management.
- Signatory to the UN PRI: In June 2022, ESR Group became a signatory to the UN PRI, publicly demonstrating our commitment to adopting and promoting sustainable and responsible investment practices. In 2023, the Group embarked on a preliminary self-assessment to understand and enhance its disclosure practices in preparation for its inaugural mandatory reporting in 2024. Group-wide training is being conducted to guide all employees with the six principles of responsible investment practices.
- Group ESG Policies: Robust and effective corporate policies and practices are vital in driving long-term sustainable growth. In line with our ESG Vision, Mission, Framework and Roadmap, we have established a comprehensive and robust suite of corporate ESG policies that are aligned with global ESG frameworks, standards and industry best practices. These policies set the tone for a unified approach to corporate governance and incorporate ESG in every aspect of our business.
- ESG 2030 Roadmap: In April 2023, we reaffirmed our commitment to accelerating long-term sustainable growth by unveiling our ESG 2030 Roadmap “Accelerating Positive Impact for a Sustainable Future”. This latest 2030 Roadmap includes new targets which are coherent with the 2025 Roadmap and they help sharpen our focus in harnessing synergistic partnerships, drive greater ESG efforts and maximise positive outcomes.
- Net Zero Carbon: We are on track to develop our overall Net Zero Strategy and Decarbonisation Roadmap as part of the transition to net zero. In accordance with our carbon mitigation hierarchy, we prioritise carbon avoidance through low-carbon design and construction, energy efficiency via the enhancement and optimisation of asset operations, and the adoption of renewable energy by maximising rooftop space. These efforts are complemented by synergistic partnerships across major markets.
- Social Impact Committee: To drive Group-wide community investment initiatives with global consistency and local relevance, the Group Social Impact Committee was set up in 2024. The objective of this committee is to enhance social impact by driving the social impact strategy, in line with the Group’s three focus areas: “Strengthening Social Resilience, Health and Well-being”, “Promoting Education & Upskilling” and “Protecting the Environment”.
- ESG Benchmarks and Ratings: The Group participates regularly in globally recognised benchmarks and ratings such as GRESB, ISS, MSCI ESG Ratings and Morningstar Sustainalytics ESG Risk Ratings. Such participation provides valuable feedback on our ESG performance compared to industry peers, in addition to enabling us to identify areas for improvement.
- Group ESG Report: We communicate our ESG performance via annual Group ESG Reports which include our progress against targets set out under the ESG 2030 Roadmap. The report is a culmination of our ESG efforts as a Group and prepared in accordance with Appendix C2 of the HKEX ESG Guide in addition to the Global Reporting Initiative (GRI), Greenhouse Gas (GHG) Protocol, and relevant regulatory requirements.
Our FY2023 ESG Achievements
Our commitment to ESG is reflected in our strong performance across leading, global ESG benchmarks and ratings:
MSCI ESG Ratings “A”
Morningstar Sustainalytics ESG Risk Ratings “Low Risk”
GRESB average 3.5 Star Rating (for 45 participating listed REITs and private funds)
Through active integration of ESG considerations into our financing mechanism, we have secured approximately US$4 billion across seven Sustainability-Linked Loans (SLLs), demonstrating our leadership in green finance and sustainable business practices.
We have installed 112 MW of rooftop solar power capacity and 809 electric vehicle charging stations across our assets globally, as part of our overall decarbonisation efforts. 42.8% of our portfolio of completed, directly managed assets also attained sustainable building certifications and ratings including LEED, NABERS, CASBEE, and WELL.
Additionally, 45.4% of our workforce are women, highlighting our commitment to diversity, equity and inclusion. We have also maintained a record of Zero workforce fatalities as part of our strong emphasis on safety, health and well-being, in addition to achieving an average of 4.25 out of 5 in our inaugural Group-wide Employee Engagement Survey.
More details and information can be found in our Group ESG Report.
Conclusion
Embracing ESG is more than just a trend; it is investing in our people and future-proofing our assets as we transit to a more inclusive, low-carbon, and climate-resilient future. At ESR Group, our purpose is to provide Space and Investment Solutions for a Sustainable Future.
If you share the same purpose, we welcome you to join us on our journey in accelerating positive impact for a sustainable future! Explore employment, investment opportunities or lease with us.
