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Business trends

Japanese real estate sector polishes ESG performance

Companies seek 'sustainability' credentials in bid to attract finicky investors

ESG performance in the real estate sector is determined by looking at a company's regulations, management and disclosure policies, as well as energy consumption and carbon dioxide emissions of its properties.   © Reuters

TOKYO -- The Japanese real estate sector is embracing a global standard for assessing sustainability in hopes of attracting investors who adopt "environmental, social and governance" -- or ESG -- investment principles.

So far this year, over 70 Japanese companies have had their ESG performance assessed, up about 50% from three years ago.

ESG performance is determined through surveys using the Global Real Estate Sustainability Benchmark, or GRESB, administered by a Dutch investor-driven organization with the same name.

The organization was launched in 2009 by APG and PGGM, two of Europe's largest pension funds.

An increasing number of real estate investors are looking at GRESB surveys to judge ESG performance before investing. The survey looks at a company's regulations, management and disclosure policies, as well as measures taken to reduce energy consumption and carbon dioxide emissions of their properties.

Companies are rated on a scale of one to five stars depending on the survey results.

Japanese real estate companies began taking the survey in 2011, with 61 participating in 2018 alone, according to CSR Design Green Investment Advisory, a Tokyo-based consultancy that helps real estate companies with their GRESB scores.

Of these, about 60% received a three- or four-star rating, according to the consultancy.

Takara Leben REIT and Global One Real Estate are among companies that will receive GRESB ratings in 2019.

In March, Global One received Green Building Certification from the Development Bank of Japan for three properties, an achievement that will affect its GRESB rating.

Global One Real Estate's TK Minami-Aoyama Building in Tokyo received Green Building Certification.

In September 2018, a total of 903 property companies, REITs and private equity funds worldwide participated in GRESB's Real Estate Assessment, which covers nearly 80,000 assets worth over $3.6 trillion.

Investors in stocks and bonds are also emphasizing ESG performance, forcing more companies to pay attention to their environmental impact, as well as the working conditions and corporate governance of partners in their supply chains.

Japan's Government Pension Investment Fund -- the world's largest such fund -- started looking more closely ESG performance as part of its investment strategy in 2017, triggering a wave of ESG investing among private-sector funds.

"It is now important for real estate companies and REITs to respond to the ESG investing trend in order to attract investors," says Ryuichi Horie, CEO of CSR Design Green.

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