Institutions eye ESG of supply chains for infra, property
Asia still significantly trails Europe and the US in investors’ scrutiny of the supply chain, as well as the data available, when it comes to a property or infrastructure investment.
Peter Hobbs, managing director of private markets at bFinance in London, said that among institutional investors across Asia, efforts at emissions data collection were focusing around Scope 1, which are related to a building’s direct emissions; and Scope 2, which deals with emissions from the generation of electricity used by the building; rather than Scope 3, which encompasses other indirect emissions within a building’s value chain.
When it came to emissions, even more advanced investors in Europe — including PGGM, Norges Bank, APG, and Allianz — who were now including Scope 3 in their coverage, were making slower progress in Asia.
“This contrasts with the growing focus on the supply chain by most investors in Europe and the US,” he said.
But Dr Raphael Mertens, chief sustainability officer for Allianz Real Estate, emphasised to AsianInvestor the company’s growing focus on the supply chain. “We have many processes in place to screen external managers and operators, and social elements play a role in these and in our compliance checks,” he said.
Mertens pointed to the growing regulatory compliance imposed by the EU Taxonomy as part of the EU Sustainable Finance Strategy, which includes a requirement to report on one’s adherence to minimum social safeguards, including human and labour rights, bribery, taxation, and fair competition, adding that he hoped soon to be able to apply these to Allianz Real Estate’s supply chain.
MANAGER SCRUTINY
Hobbs noted that investment managers — viewed as part of the asset owners’ supply chain — are now facing increasing scrutiny, giving an example of a Canadian asset owner client that rejected an otherwise strong European property manager because its policies on diversity and inclusion were below par.
“They knew they were good from the investment strategy and track record point of view, but they raised concerns over some of the managers, stating ‘there is no diversity here’, at the level of the investment committee and team dedicated to the strategies,” he said.
Hobbs said that investors in the US and South Africa were leading scrutiny of social impact through the property supply chain, focusing particularly on the diversity and inclusion of the investment manager’s workforce, the building management team, and other companies that provide building services.
“In this regard, focus on the social impact of a building is generally greater than the focus on its environmental impact,” he said.
By contrast, Kamya Miglani, JLL, head of ESG research Asia Pacific in Singapore, said there was very little focus on the social impact of a building’s supply chain on the local community, including improving a building’s facilities for local workers and residents.
“Where investors in Asia are collecting data on the supply chain, it tends only to be about emissions,” she said.
NEED FOR REGULATION
“Progress won’t be achieved by generosity. A lot of effort will be required around regulations and at government level,” Miglani added.
“Regulation has made it easier to gather data in some cases,” Stan Bertram, associate director for ESG, private real estate, at PGGM Investments.
He said that the biggest area of improvement when it came to collecting ESG data about properties in PGGM’s portfolio was around energy use, and that regulators had provided an important role.
Hobbs agreed that regulation will be important. “You have excuses now about stakeholders not being able to measure their emissions, or concerns around freedom of information when it comes to collecting data from tenants. So, the focus should be on requirements for disclosure or reporting: there will be resistance but that is the way you can guarantee to raise the bar,” he said.