Global asset allocators flag limits to green lease adoption

Norges Bank Investment Management and PGGM Investments say while green leases are highly useful in improving data and cutting property emissions, regulation is vital to improve the pace of growth.
Global asset allocators flag limits to green lease adoption

Despite the growing adoption of green leases by institutional investors across Asia, investors and consultants have pointed to their limitations, and stressed the central role of Asia's regulators in driving binding requirements for building emissions.

“Green leases are often somewhat tricky to enforce legally,” Nina Galbiati, senior manager at Norges Bank Investment Management, the asset management unit of the Norwegian central bank, which manages the Norwegian Government Pension Fund Global, Norway’s $1.4trn sovereign fund, told AsianInvestor.

“We see much more progress in our tenant engagement in cities or countries where local authorities have passed legislation with regards to mandatory energy data reporting or regulation on energy intensity or carbon emissions – this could be due to lack of standards around green leases or that [leases are] not yet market practice,” she said.

Stan Bertram, associate director for ESG, private real estate, at PGGM Investments, the investment manager for the €277bn Dutch pension fund, told AsianInvestor that regulation was providing an important support to PGGM’s efforts to improve the fund’s attempt to improve the data it is collecting around emissions and energy use in Asia. 

“In Asia Pacific countries such as Singapore, regulation is raising the bar from a sustainability point of view,” he said.

Maarten Jennen, senior director and strategist in private real estate at PGGM Investments, said that green leases could be a valuable resource in providing clearer data about a building’s energy consumption and helping tenants reduce it.

“This is something where we see the benefit, increasingly, across the globe,” he said, adding that – while PGGM encouraged use of leases in Asia and beyond – the drafting and enforcement of leases was left to individual property managers.


Peter Hobbs, managing director of private markets at bFinance in London, whose clients include a number of institutional investors across Asia said that, while green lease adoption in Asia was growing fast, landlords and tenants still raised concerns about the cost of putting them in place and the binding nature of leases.

“Where they are legally binding you often see solicitors pushing back around the obligations,” he said, adding that unless green leases were stringent, they would not ensure the reductions that were necessary.

“It’s not only investors but regulators, who must push this,” he added  

Kamya Miglani, JLL’s head of environmental, social and governance research in Asia-Pacific, based in Singapore, said that the growing use of green leases in Asia was being driven in large part by investors. 

“When it comes to institutional landlords, there is definitely a push for setting green clauses,” she said, adding that leases were particularly popular among investors who had taken specific measures to improve a building’s performance around energy, water or waste and wanted to ensure the benefits were being maximised.

But she pointed to several obstacles to the adoption of green leases including higher rents for buildings with green leases, limitations imposed on drafting leases or achieving their targets imposed by the building’s infrastructure and the lack of availability of data on building performance.


In a report published on September 30, Green leases: Setting the tone for responsible leases, JLL revealed a June survey of corporate tenants in Asia-Pacific, which found that 42% had adopted green leases and another 43% plan to adopt them by 2025, noting that adoption in Australia was far ahead of other countries in the region. The same report revealed that, in a survey of 340 sustainability professionals in Asia Pacific, 65% believe that green leases would replace conventional leases by 2025.

However, the survey is likely to overestimate the number of genuine leases, since two of the three categories of green lease featured no legally binding green clauses at all. In these cases, targets were aspirational provisions or – in some cases – agreements “only in spirit”. 

“The actual coverage number is likely to be significantly lower,” said Hobbs. 

Maarten said that, even where agreements around green targets or the sharing of data were not binding, the inclusion of the topic in discussion provided important progress.

“It demonstrates the growing importance of these subjects, and non-binding agreements may then become binding,” he said, adding that PGGM typically did not get involved in the precise legal implications of binding agreements, leaving this to its managers. 


In a separate report publised November 29, The value of sustainability: Evidence for a green premium in Asia, JLL revealed that buildings that had achieved a high level of green certification were achieving up to 28% higher rents than equivalent non-green buildings.

The report surveyed 3,089 Grade A1 office buildings in 14 cities across Asia, that employ a range of green certification standards. Hong Kong had the highest rental premium conferred by green certification, 28%, and the second lowest coverage of green certificated buildings, at 29% of total grade A office stock. The lowest coverage was Osaka in Japan, with 14%.

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