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 China.
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 the organization
- Apply a Robotic Process Automation (RPA) where it automatically connects the central system for ESG information disclosure and internal monitoring
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
How to prepare for 2019?
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
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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.