ESG as a global
vision has enhanced compliance and reporting standards
Sustainability is not rocket science yet the rapid global sustainability
demand has encouraged overwhelmingly stringent laws and regulations from
governments and investment institutions in 2018. The bell rings again for companies
to step up their ESG disclosures in 2019.
According to the EY Global CCaSS Investor Survey 2018, nearly
all investors (97%) find ESG factors pivotal to their investment decision-making
process. Most expected the disclosure to be integrated into mandates.
In fact, mandatory listing requirements on ESG reporting are usually introduced either at the stock exchange’s initiative or through government regulation. As of the third quarter of 2018, 16 global stock exchanges bind their conditions, and 8 were in Asia. (Sustainable Stock Exchanges Initiative, 2018)
China’s real estate is on the fast track to sustainability
Homes with sustainable features are blazing trails around the globe. Meanwhile, following an increase in domestic demands for properties in Greater China, The Assessment Standard for Green Building of China was revised in 2018 to highlight the significance of green building features and innovations, upon safety, durability, convenience, health, livability, age-friendliness, and efficiency.
The sheer amount of real estate’s development raises prices and provides a boon to developers. To sustain this performance, the property market in 2019 calls for more ESG regulatory and compliance obligations to control the consistent product quality pre and post construction.
EY teams identified three major compelling ESG trends in 2019: Governance, Data and KPI Disclosures, and Climate Change – all which collectively and individually pose challenges and opportunities to real estate markets in the Greater China area.
Investors in the 2018 study reported that the risk or history of poor governance
practices would cause 62% to rule out an investment immediately. In light of
that, more stringent governance reporting guidelines were required especially
in a market like Greater China where the
maturity of governance disclosure is not as far along.
In May 2018, the Hong Kong Stock Exchange shed light on the importance of establishing an ESG governance system and ensuring the responsibility of the board in sustainability risk management and internal control systems.
In fact, among the real estate developers in Greater China, the increase of awareness from listed real estate companies from the board is significant. Despite 60% of real estate corporations still lacking a board of directors who participate in ESG affairs, the data shows that the participation of the board of directors is increasing year by year, and nearly 18% of ESG committees of real estate companies are directed by the board.
2. Data Collection
Investors are requesting more high-quality, non-financial
data from public companies, and seeking consistent, investment-grade
information to support their decision-making.
In the meantime, the complexity in real-estate data
collection and management is rising.
The real estate industry includes an increasing amount of construction and operational data in different locations during different construction and lease periods. It is also challenging to unify the calculation methods in accordance with various property types, such as different ownerships and tenancy agreements.
In fact, ESG data collection and management are no longer
hurdles for reporting. ESG data collection IT systems enable cross-departmental
and cross-regional data management. Several measures, including tailor-made software
and platforms have been introduced to the real estate industry in Greater
Three major ESG data management solutions:
- Employ a third-party software to manually input data
from each KPI
- Incorporate an Enterprise Information Portal
(EIP) with the internal ESG data management system as a unified access point across
- Apply a Robotic Process Automation (RPA) where
it automatically connects the central system for ESG information disclosure and
3. Climate Change
In addition to the transitional risk tied to adapting to new
regulations, practices, and processes, investors are now more concerned about
disclosures in relation to physical implications of climate change risk.
One of the clauses in China’s 13th Five-Year Plan on Green Building Development identified green building development as a profound and strategic milestone in response to climate change. Exploiting the rapid urbanization and economic transformation, real estate industry developers are suggested to complement the plan with energy efficiency measures and incorporate climate change risk into their policy such as Sponge City.
In Hong Kong specifically, local regulators are joining the cohorts of their international peers to promote climate change awareness. In 2018, the Securities and Futures Commission of Hong Kong (SFC) listed enhancing climate-related disclosure as its top priority in developing green finance. The Hong Kong Stock Exchange (HKEX) also revised its Environmental, Social and Governance (ESG) reporting guidance to encourage and support listed companies to better understand climate-related risks.
Leading real estate developers pioneered in establishing an internal climate change policy and conducting climate risk assessments for all portfolios. Concerning this pressing issue, this approach guided corporations in examining the potential impacts from climate change customized to their operation activities and strategic planning.
How to prepare for
Governance, Data Collection, and Climate Change are the three major trends that are substantially transforming how Greater China governs sustainability in the real estate industry. In 2019, real estate developers and investors can enhance their ESG disclosure by planning ahead regarding these trends, from board communications, to data collection system advancement, to internal climate policy stipulations that align with external stakeholders’ expectations on sustainability.
Click here to read more about how corporations can benefit from Greater China sustainability related opportunities and challenges.
This publication contains
information in summary form and is therefore intended for general guidance
only. It is not intended to be a substitute for detailed research or the
exercise of professional judgment. Member firms of the global EY organization
cannot accept responsibility for loss to any person relying on this article.
Sustainable Stock Exchanges Initiative. (2018). 2018 Report on progress. Sustainable Stock Exchanges Initiative.