European pensions increase ESG pressure on Asia property funds
Pressure from investors outside Asia is increasing the quality and range of ESG data reported by Asian property funds, according to the leading global ESG benchmark for real estate.
“There is increased pressure from asset owners who require their managers to participate in the annual benchmark, although this pressure mostly comes from non-Asian asset owners,” said Ruben Langbroek, head of Asia Pacific for the Global Real Estate Sustainability Board (GRESB).
In previous years, many Asian real estate companies have chosen not to report performance against the GRESB benchmark, fearing their results would trail their peers.
While this has led to ESG scores for Asia being unrepresentative of wider standards in the region, this effect has weakened over the past year as demand from investors to report regardless of performance has increased, according to Langbroek.
“It’s not just about winning. Many Asian respondents are taking part because they know they do well on ESG and want to report their achievements to stakeholders, including their investors. [But] many participate because they’d like to understand how they perform and where they can improve their ESG practices and processes,” he said, adding that Asian respondents included many large listed companies.
APG and PGGM told AsianInvestor that they placed strong emphasis on GRESB reporting internally and from managers.
“In all new investments we require our managers to participate in GRESB and to commit themselves to achieve an above-average rating within a period of 3 years,” said Robert-Jan Foortse, head of European property investments at APG asset management, which manages €541bn on behalf of several pension funds, collectively comprising 4.8 million participants, including the government employee fund ABP.
“[ABP] expects that the total portfolio will be CRREM-aligned in 2030 or there should be an improvement plan in place,” he added, referring to the Carbon Risk Real Estate Monitor (CRREM), a GRESB-associated project which provides decarbonization pathways aligned with the Paris Climate Goals.
Foortse said that APG pushed all investment partners to have plotted a decarbonisation pathway under CRREM.
Langbroek said that within and beyond Asia many investors had built their ESG data management and reporting around the GRESB measures, a view supported by Stan Bertram, associate director for ESG at PGGM, a co-creator of GRESB, alongside APG and UK pension fund USS.
“GRESB is key to monitoring our managers’ progress with regard to energy consumption and CO2 emissions, helping our managers to shape plans to align with a Paris-aligned scenario and report on it,” he said
Bertram added that the company is using GRESB data to monitor progress towards its aim to double the amount of renewable energy that is generated on- and offsite of buildings owned by PGGM, between 2020 and 2025. However, he clarified that the company had been demanding GRESB participation for over a decade already and there had been no increased pressure around the benchmark in the last year.
Assets managed by Asian real estate companies and fund managers participating in GRESB’s benchmark assessment grew from $1,803bn in the 2021 benchmark to $2,010bn in the most recent 2022 benchmark.
Those managed beyond Asia grew from $3,639bn to $4,953bn, making the total universe tracked by GRESB’s benchmark worth $6,963bn across currently comprises 1820 portfolios. The total number of participants from Asia grew from 238 in 2021 to 288 in 2022; those from beyond Asia grew from 1,282 to 1,532.
Five out of the 7 best performing countries on GRESB scores were from Asia Pacific, led by Australia, the second highest performer behind the Netherlands, followed by Singapore, Japan, Hong Kong and India in positions’ fourth to seventh respectively.
According to the GRESB benchmark Asia’s ESG assets are more highly concentrated in a few funds relative to Australia and Europe. Asia’s $2,010bn of assets in the GRESB survey are managed by 288 entities. The $302bn in Oceania are managed by 116 entities. Europe’s $1,583bn are managed by 907 entities.
Besides pressure from individual asset owners, participation of Asian asset managers in the GRESB benchmark has been driven by co-ordinated efforts.
In April 2022, a group of 16 fund managers representing US $19 trillion launched a round of coordinated engagements to strengthen dialogue on ESG performance and GRESB participation with real estate companies across 12 key markets in the APAC region.
The group, which included Heitman, JP Morgan Asset Management, Schroders and Bouwinvest, focused on markets such as Australia, Hong Kong, South Korea, Singapore, and Japan. A similar initiative in 2021 featured 13 fund managers.
Reporting under GRESB requires considerable time and resources, Langbroek said, adding that providing the required annual assessment, which must be delivered between April and July, can take up to three months for funds that are unfamiliar with the requirements.
However, once in place, he said, GRESB reporting can provide a useful framework for ESG reporting to investors.