Shifting priorities for property


What is certain is that sustainability and ESG practices will become part and parcel of the built environment.

AS the world gradually emerges from the shadows of the Covid-19 pandemic, concerns on climate change are intensifying in tandem with other environmental and social aspects.

With public and investor interest vested in how communities should interact moving forward, attention has naturally turned to sustainable infrastructure and liveable spaces.

Thus, environmental, social and governance (ESG) considerations are becoming increasingly vital in the strategies of companies across various industries – with the property industry among those taking the lead.

According to the World Green Building Council, buildings are responsible for 39% of global energy-related carbon emissions.

That’s not to say that the property industry has not been making strides in transforming itself to become more sustainable, as it has championed the Green Building Index and other initiatives linked to the United Nations’ Sustainable Development Goals in past years.

PwC’s 25th Annual Global CEO Survey also shows that 18% of Malaysia’s corporate sector, including construction, have made a net zero commitment and 38% are science-aligned to meet the goals of the Paris Agreement.

Another recent report by PwC, Positioning Corporate Malaysia for a Sustainable Future, reveals that Malaysia’s materiality reporting on secondary impacts is “above average for greenhouse gas emissions and the highest in Asean for climate change.”

And these efforts towards achieving net zero are starting to pay off, as demand for greener buildings skyrocket – the 2021 Jones Lang LaSalle Inc (JLL) survey Sustainable Real Estate: Translating ambitions into Action revealed that 70% of the companies polled were willing to pay higher rents for space in green-certified buildings in efforts to meet decarbonisation targets.

Aside from environmental concerns, the social aspects of sustainability and livability must also be considered in any built environment, as it affects the physical and mental health and well being of the occupiers in the long run.Aside from environmental concerns, the social aspects of sustainability and livability must also be considered in any built environment, as it affects the physical and mental health and well being of the occupiers in the long run.

The study stated that the majority currently paying a premium are spending 7% to 10% more in rental costs.

Moreover, in light of the growing importance of ESG, Moody’s Investors Service has recently updated its environmental heat map.

It said: “A property’s environmental footprint (parameters such as energy efficiency, water usage, waste management and indoor environment quality) could influence leasing outcomes because tenants are becoming more sensitive to the green attributes of their leased spaces.”

Historically, it has been proven that green certifications bring about a 6% rent premium and 7.6% sales premium, according to the 2018 Routledge Handbook of Sustainable Real Estate.

In addition, Deloitte notes that as a major consumer of energy, the property sector’s focus on “the construction of more sustainable buildings by means of new eco-friendly materials or smart technological heating or ventilation not only helps the environment, but also boosts the return of the respective real estate investment, improving investment performance.”

Smart cities, Deloitte points out, are also another expression of ESG’s impact on infrastructure: “Most of these methods are nowadays designed to allow ESG guidelines to span across the life of a city, in the respective assets, community services and resources, including better (and greener) transportation, improved communication networks, optimisation of energy consumption, water supply, crime detection and waste.”

Creating a sustainable ecosystem within which both communities and biodiversity will thrive is the way forward.Creating a sustainable ecosystem within which both communities and biodiversity will thrive is the way forward.

Reassessing built environments

This is the reason that while sustainable developments – especially when it comes to environmental aspects – remains more expensive than conventional methods owing to new and emerging green technology, more players in the property sector are already placing key importance on integrating ESG elements into their projects.

Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia president Michael Kong said that in time, the costs related to sustainable development will decrease.

“As we progress and embrace green technologies fully, the cost of these methods, practices and technologies will eventually be lowered significantly,” he says.

In the long run, Universiti Malaya associate professor (industry) Sarly Adre Sarkum says that investments into such developments will translate into lower running costs and consumption, while some improvements can be made through keen planning and design.

“A massive amount of improvement can be obtained by considering passive design elements such as shading, orientation and ventilation. All this should be part of good architectural design,” he opines.

Kong adds that sustainability goes beyond environmental impact, green practices and technology, noting: “Aside from environmental concerns, the social aspects of sustainability and livability must also be considered in any built environment as it affects the physical and mental health and well being of the occupiers in the long run.”

What is certain, however, is that sustainability and ESG practices will become part and parcel of the built environment – be it due to increasing investor and consumer pressure, growing environmental awareness, government policies, legislative framework or best construction practices.

“Wherever possible, the 3R concept of reduce, reuse and recycle will be implemented in construction technology.

“Projects that have well thought out designs in terms of environmental sustainability, cost savings and social livability will likely stand out and excel in values,” Kong shares.

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