Property investors fill gaps in environmental reporting
Investors are stepping up efforts to improve the quality of environmental information available for Asian property investments, with specialised hiring, internal training, and the use of green leases.
The move is driven in part by a continued paucity of data from operators, investment managers, and companies in the sector.
Danny Phuan, head of Asia-Pacific acquisitions and head of China at Allianz Real Estate, told AsianInvestor that the company had improved the quality of environmental data from its properties in China by expanding its use of so-called “green leases,” tenancy agreements that include clauses that help improve the environmental performance of a property.
Across the two business parks that it owns, the proportion of leases that are green increased from 8% to 25% in the year to the first quarter of 2022.
“We have found less resistance than we thought [from tenants],” Phuan said.
Robert-Jan Foortse, APG’s head of European real estate, pointed to the fund’s use of green leases to monitor and reduce embedded carbon when funding construction. “They are a prerequisite to ensure the sustainable construction and fit-out, usage, and maintenance of the properties where the operator and owner are separate entities,” he said.
Overall, green leases are “a great mechanism to ensure we as an owner get the asset-level data we require, including energy usage, greenhouse gas emissions, water usage, and waste to monitor and steer on ESG performance,” Foortse told AsianInvestor.
STAFFING FOCUS
Asian investors say timely hiring and continued internal training have been key to improving the level of environmental scrutiny on property assets.
Liza McDonald, head of responsible investments at Aware Super, said that an early focus on hiring, including in the property team, had been crucial in equipping the fund as the availability of skilled staff has tightened.
“We established a highly skilled and credentialled responsible investment team early on, and importantly, we’ve also developed ESG skills and awareness throughout the wider investment team,” she said.
“There’s no doubt that demand for highly experienced ESG investment specialists has grown significantly in recent years. There’s still room for improvement in ESG skills and awareness across the global talent pool of investment specialists,” she said.
Toby Selman, who leads global real estate strategy at the New Zealand Superannuation Fund said that environmental knowledge in the sector was improving. “Investment professionals are more aware of ESG; there has been a lot more up-skilling. Now, if someone turned up and said they don’t know anything about [ESG] you would say that they were naïve,” he said.
At the fund, members of the responsible investment team are included in each prospective and actual property transaction, including during investment diligence, working alongside portfolio managers, he said.
Derk Welling, senior responsible investment and governance manager for global real estate investments at APG, echoed the importance of an established hiring strategy when it comes to improving scrutiny of assets’ environmental and social profiles.
APG has hired three ESG specialists into its Asia team in the last 18 months, including one for the property team. Globally, its ESG team now includes 30 staff, as well as a climate scientist and a dedicated ESG integration lead for global property investments, who is tasked with embedding ESG as a core focus of the investment team.
“This allows us access to specialists in various areas and per asset class. We recognise the increased demand for ESG specialists,” Welling told AsianInvestor.
MIND THE GAP
The drive to improve internal capacity for generating and collecting information is, in part, a response to continued gaps in the availability of data from investment managers, third parties, and companies themselves.
“There is still a long way to go. If I had one wish it would be that [companies and managers] place more emphasis on their carbon risk looking forward not just looking back,” said Fiona Mann, head of listed equities and ESG at Brighter Super said.
“Managers are getting a better handle on the financial impacts of climate change and what carbon emissions mean for the prices of assets. But examining the financial impacts of [carbon?] change means accounting for future emissions. It also means considering the implications for leverage, liquidity, and capital loss,” said Mann.