Asian real estate still remains poorly served when it comes to ESG investing, despite the growth in allocations coming from outside the region.

“[Much of] Asia still hasn’t been as transparent as other regions,” said Mary Power, senior consultant for property at Jana Investment Advisors in Melbourne. She noted that when it came to Asian allocations, the focus continued to be on Australia and Japan.

Asia Pacific’s lagging performance in real estate ESG reporting stands in stark contrast to Australia, where the reporting is arguably the best in the world, said Ruben Langbroek, head of Asia Pacific for GRESB, an independent ESG benchmarking association in the real estate and infrastructure sectors.

Australian funds came out on top in five of GRESB’s 32 sector categories in its annual 2020 benchmark assessment. One Australian manager, Lendlease, placed top in three categories: private residential, private office, and private retail.

Sourcing adequate ESG information is an important pre-requisite for investing in Asia. “Investors want greater transparency on ESG metrics and greater engagement with managers on ESG outcomes,” said Troy Rieck, CIO of Australian superannuation fund LGIAsuper.

“This will be an important step for those considering investments into less familiar territories, such as Asian real estate. But it is also an opportunity for those investors who can dig below the surface and do their own research,” he added.

In the meantime, LGIAsuper has limited its real estate allocation to Australia and Europe, another region with high reporting standards in ESG, according to Langbroek.

Aware Super is another Australian superannuation fund that has avoided investing in Asian real estate, but has large allocations to Australia, Europe, and North America. Alek Misev, portfolio manager for property at Aware Super in Sydney, told AsianInvestor that the risk-return dynamics in the Asia property region had not been as appealing as Europe and the US 

A DIFFERENT ANGLE

On the other hand, Asian real estate managers are adopting ESG reporting at a much faster pace.

Assets managed by Asian real estate companies and fund managers grew by 30% in Asia, from $884 billion to $1.146 trillion, according to GRESB’s 2020 benchmark assessment. Meanwhile, assets that were managed outside of Asia grew only 12%, from $3.241 trillion to $3.639 trillion.

The total universe tracked by GRESB’s benchmark comprises 1,229 portfolios, worth $4.785 trillion in aggregate. Asia comprises 187 portfolios, worth $1.146 trillion. Participation in the benchmark requires extensive reporting to GRESB, which then rates the fund’s ESG performance on both strategy and implementation.

Asian real estate managers that report information to GRESB are dominated by Japan. Eighty five entities in Japan reported their data to GRESB in 2020, compared with 28 in mainland China and 12 in Hong Kong .

According to the GRESB benchmark, Asia’s ESG assets are more highly concentrated, with $1.146 trillion in assets managed by 187 entities. In Australia and New Zealand, $274 billion in assets are managed by 93 funds, 89 of which are Australian. Meanwhile, Europe’s $1.210 trillion in assets are managed by 610 entities. 

DEDICATION REQUIRED

Langbroek said that GRESB’s coverage of Asian funds would be higher if there weren’t so many asset managers who were reluctant to publicise their underperformance on ESG measures relative to their non-Asian peers.

Considerable time and resources are also required to conduct the reporting. Funds that are unfamiliar with requirements could take up to three months to provide the annual assessment, which must be delivered between April and July.

However, once in place, GRESB reporting can provide a useful framework for ESG reporting to investors. Langbroek said that many funds had built their ESG data management and reporting around the GRESB measures.

Rieck emphasised the benefits of GRESB in improving ESG disclosure. “In real estate, the GRESB index was the first to be taken seriously at an institutional level, and has facilitated similar undertakings in other asset classes. [The ratings] are publicly available and allow [us] to better understand and oversee the managers who invest our members’ capital,” he said, adding that the fund worked with Jana to review the ESG performance of its assets and managers. Power said that the majority of funds tracked by Jana were rated by GRESB. 

Manish Rastogi, head of real assets with Frontier Advisors in Melbourne, told AsianInvestor that is proving to be popular benchmarking standard for ESG reporting but that the sector was still fragmented.

“There are a number of standards and no one global standard, and infrastructure managers report their ESG data and compliance in different ways. We suggest managers submit their ESG data to GRESB for a standardised benchmarking approach but are not all wedded to the GRESB standard.” 

Join asset owners in their discussion on ESG at our Mandating Change Week which runs from October 25-28, 2021. Click here to register.