As climate change and environment risks reshape asset valuations around the world, long-term investors are being compelled to reexamine their strategies from an environmental, social and corporate governance (ESG) perspective. For example, insurers need to look at flood risk from rising sea levels, while sovereign wealth and pension funds are pricing in carbon risk.
Against this backdrop, in December 2020, the Monetary Authority of Singapore (MAS) issued guidelines to outline expectations on managing environmental risks. These guidelines are meant to encourage real estate investment trust (REIT) managers and fund management companies to holistically assess how climate change impacts business models going forward and to prepare them to proactively mitigate any risks. They encompass aspects related to governance, strategy, research, portfolio construction and risk management, stewardship and disclosure of environmental risk information, among others.
The understanding and knowledge around ESG-related topics has increased significantly over the years. The built environment industry contributes nearly 40 per cent of greenhouse gas emissions globally, and a key part of Singapore’s sustainability agenda is curbing emissions from buildings.
Demand for sustainable and green assets is rapidly growing. This growth is evident in Singapore and also in other parts of Asia. In terms of sustainability finance, the Singapore government will issue green bonds for up to S$19 billion worth of infrastructure projects, with some of these covering financing for the real estate sector.
There is also greater interest in lowering the risk of greenwashing, the practice of channelling proceeds from green finance towards projects with negligible or negative environment benefits. In KPMG’s interactions with industry players, we are seeing companies apply baseline standards in managing sustainable assets.
Along with this, companies are pushing for ESG commitments to happen across the value chain, instead of just by individual developers. This creates scalable new demand for green services, encouraging greater innovation and commitment to the sustainability cause. For example, developers and owners can appoint agents who use eco-friendly products and services to clean and maintain facilities, as part of measures to support green initiatives. This in turn, encourages agents to start offering eco-friendly products and services.
In this interview with REITAsiaPac magazine, Cherine Fok, Director, Sustainability Services and KPMG IMPACT, KPMG in Singapore, shares her views on the climate and trajectory of ESG investing in the property sector. She also discusses the key challenges to ESG investing, such as a lack of data points and the need to improve the quality of disclosures.