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Cities & Urbanisation, Asia Pacific

ESG enters the mainstream

City Developments Limited | Sep 27, 2019

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Image by Sean Pollock

This article was written by Esther An, Chief Sustainability Officer, City Developments Ltd and is published with permission.

Investors increasingly see sustainability as a way to add value as well as essential in order to meet the regulatory and physical challenges of climate change

The building and construction sectors account for 40% of global annual greenhouse gas emissions and 36% of the world’s energy consumption, according to the International Energy Agency. Despite the increased focus on the urgent need for drastic climate mitigation and adaption, energy demand continues to rise. The building and construction sectors across the world need to incorporate sustainability in their business in order to reverse this trend if we are to keep global temperature increase to under 1.5°C. 

In order to engage the building industry players to combat climate challenges, collective action and collaboration involving the entire value chain and support by organisations like APREA are essential. 

Extreme weather events and failure to mitigate and adapt to climate change are deemed top business risks by global leaders in public and private sectors, according to the World Economic ForumThe cost of these challenges is material; a CDP report found the climate risks faced by 200 of the world’s largest companies amounted to US$1 trillion.   

At CDL, we have embraced Environmental, Social and Governance (ESG) integration for over two decades. This strategy has not only helped us to mitigate risks but also adapt to climate-related challenges through driving innovation and solutions that create value for our business and stakeholders. 

Today, ESG investing is becoming increasingly important in Asia, given the region’s environmental and social concerns. Asia’s government pension funds are taking the lead to integrate ESG principles in their investment process. Japan’s Government Pension Investment Fund, the world’s largest pension fund, has raised its allocation to ESG investments from 3% of its equity holdings in July 2017 to 10% and South Korea’s National Pension Service has signed up to the Principles for Responsible Investment (PRI).  

Indeed, ESG factors are increasingly used as parameters by investors to manage financial risks arising from environmental events, reputational damage and governance issues. Notably, the MSCI Emerging Markets ESG equity indices outperformed the wider MSCI Emerging Market Index by 16over the five years from 2013 to 2017, arguably showing ESG factors are more relevant in emerging markets. 

Driven by strong government support and rising sustainable awareness from new generation of private investors, broader adoption of ESG factors into mainstream investment decisions in Asia is evident. More and more investors see climate action as adding value, not just mitigating risk. Green Generation Solutions, a global energy solutions provider, says enlightened asset owners are adopting sustainability to further drive cashflow and asset values, not simply to meet regulatory and compliance obligations. 

Enhancing Financial Capital through ESG Integration   

To tackle climate and social challenges, businesses need to re-examine their relationship with the environment, looking beyond immediate financial returns. The United Nations Sustainable Development Goals provide guidance for companies to review their corporate strategy and business activities, enabling them to identify risks and seize growth opportunities.  

Committed to the ethos of “conserving as we construct” since 1995, CDL has embraced sustainability to drive a low carbon economy and greater shared value through responsible practices and continual innovation. For over a decade now, CDL has pledged to achieve a minimum of Green Mark GoldPLUS certification, two levels above the mandatory requirement by Singapore’s Building and Construction Authority (BCA) for all new developments, by investing 2-5% of each new development’s construction cost in green design, features and building methods.  As of December 2018, CDL had 100 Green Mark-certified developments and office interiors. Sustainable and resource-efficient practices have also helped us to achieve significant operational savings. Between 2012 and 2018, eight CDL-managed office buildings saved over S$24m in electricity bills. 

Furthermore, our sustainability track record has enabled us to tap green finance; in April 2017, CDL launched the first green bond by a Singapore listed real estate company, raising S$100 million. In April 2019, CDL secured the first green loan facilities in Singapore for financing new green developments, comprising S$100m from HSBC and S$400m from DBS. In a first-of-its-kind concept for a sustainability-linked loan, CDL set a new benchmark and secured a S$250m SDG Innovation Loan from DBS in September 2019. It aims to accelerate innovative solutions that have a positive impact on SDGs. It also complements global sustainability trends and answers the Singapore government’s call for climate action, smart cities, green innovation as well as sustainable development and financing. CDL will be eligible for a discount on the interest rate of the loan when it achieves sustainability-related performance targets mutually agreed with DBS on innovations that contribute positively to the SDGs. There is huge market potential in green financingMoody’s forecasts that green bond issuance will hit US$200 billion for the full year of 2019. 

ESG is the fastest growing investment approach globally; assets in the ESG investing sector rose 15% to US$52 billion during the first half of 2019, according to research from Fitch Ratings.  This pool of assets is still relatively small but money market funds which incorporate ESG metrics are certainly growing fast, with a spurt of activity by leading asset managers such as Blackrock, State Street Global Advisors and DWS.  Looking ahead, ESG analysis aims to identify businesses which are well prepared to deal with increasingly complex risks and thus create long term shareholder value. Financiers predict further rapid growth given that investors from both the public and private sectors seem keen to explore more ESG options.  This will certainly catalyse action and investment towards a more sustainable future for all.   

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