Responsible Property Investment Comes of Age Globally

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Portfolio Owners Embrace Emerging Green Lease and Wellness Trends

According to global real estate advisor CBRE, building developers and owners worldwide are increasingly implementing comprehensive Environmental, Social, and Governance (ESG) programs.
 
The results of CBRE's recently released 2015 GRESB Global Survey -- spanning over 700 participants reporting on the sustainability performance of real estate portfolios -- show there is a significant shift towards enhanced responsible property investment (RPI) performance with the majority of responding portfolios achieving GRESB Green Star status for the first time. Two key themes emerging are the widespread adoption of green leases, and attention being placed on health and well-being of building occupants.

Green Leases, The New Norm

According to GRESB, 60% of portfolios report some form of green lease clause in their standard contract. Given tenants are responsible for up to half of a building's total energy use and associated greenhouse gas emissions, effective green lease clauses can have a profound effect on a building's overall performance.

In addition, there is a growing trend among large multinational occupiers to seek the inclusion of green clauses in leased portfolios to facilitate the achievement of corporate sustainability goals. This makes early adoption of green leases sound business sense for building owners, as explained by Justin Halewood, Head, Energy & Environment, Group CRES at Standard Chartered Bank:

"Green leases are one of the foundation stones for an ongoing program to reduce energy and water consumption across the Bank's footprint. With an ever larger proportion of our portfolio being leased, collaboration with our landlords has become critical to success--green leases provide a platform for those joint efforts. In addition to driving greater uptake of green leases by helping us identify and acquire the most sustainable assets, CBRE are transforming our footprint from grey to green."

Waking Up to Wellness

Rising up the corporate agenda is the increased attention being paid to the health and well-being of occupiers. According to GRESB, many health and safety plans and actions are in place within the commercial real estate sector, with employee health and safety checks in the last three years up by 11% year-on-year. Nearly all participants in the GRESB report have specific employee policies related to health and safety--95% of all reporting entities have such policies in place. Furthermore, of all survey participants, 88% actively monitor specific aspects of employee health, safety and well-being, revealing that companies are increasingly prioritizing employee needs when making business and real estate decisions.

Asia's GRESB Highlights

The average GRESB score in Asia increased significantly from 2014 by an impressive 18% to an average score of 54, achieving GRESB 'Green Star' sector status for the first time. Asia slightly outperformed Europe and North America with respect to measurement and implementation of sustainability benchmarking. There was also a 13% year-on-year increase in regional participation to a total of 104 property companies and funds despite many portfolios no longer reporting in the case of close-ended funds.

Tim Shen, Director, Sustainability Asia, CBRE, comments, "looking ahead, key focuses for Asia portfolios will be Policy & Disclosure, and Green Building certification, where the region still lags behind the GRESB global average. The expectation is recent attention from regional stock exchanges to ESG reporting will lead to increasing RPI Policy & Disclosure among listed entities. With some countries such as Singapore, having already signalled to the market that green leases will become an expectation in the future--alongside the environmental pressures and social awareness around health and well-being rapidly growing in the region--we can expect Asia portfolios to continue embracing these emerging trends to further improve RPI performance in the region."

It is evident that portfolio owners who understand how to address the social aspects of sustainability, and in particular how to effectively engage with occupiers, are adding significant value to their assets, making them more attractive to institutional capital.