Jackie Cheung, the Director of ESG for Asia-Pacific and Singapore at Knight Frank, is at the forefront of leading the firm’s Environmental, Social, and Governance (ESG) efforts across the region. Based in Singapore, Cheung provides insights into the evolving demands for ESG in the real estate sector and the challenges and opportunities that lie ahead in this conversation with CarbonWire.
Growing Demand for ESG in Real Estate
Cheung notes that the demand for ESG in the real estate sector is on the rise but varies significantly across different markets and companies. “The demand for ESG varies significantly between countries and even among companies within the real estate sector,” he says. However, the challenge lies in the “management gap,” where many companies may be required to provide annual ESG disclosures but struggle to implement these practices consistently throughout the real estate life cycle.
“At Knight Frank, we recognize this gap and aim to differentiate ourselves by not just treating ESG as a service but as a core governance principle,” Cheung explains. He emphasizes that Knight Frank’s approach to ESG is deeply embedded in their company culture, driven by a commitment to responsible business practices rather than merely offering ESG as another product.
Cheung also highlights the increasing trend of clients conducting supply chain checks on corporate ESG practices. “This shift towards responsible business practices is driving the industry forward,” he adds. However, he points out that the disparity in ESG practices between regions remains a challenge, particularly in Asia, where ESG due diligence during transactions is less common than in UK and Europe.
Regional Differences in ESG Approaches
When asked about differences in how countries across the Asia-Pacific region approach sustainability and ESG, Cheung notes that there are indeed variations. “In Singapore, the government plays a significant role in advancing sustainability implementation at the asset level, as seen with the Green Mark initiative developed by the Building and Construction Authority (BCA),” he says. He also highlights Malaysia’s progress with the Energy Efficiency and Conservation Act (EECA) which will require appointing registered energy manager (REM) for high energy consumers, and maintaining energy labels for non-high energy consumers. In contrast, some Asia-Pacific countries may rely more on industry-led initiatives or voluntary standards.
Cheung mentions that stock exchanges in Singapore and Hong Kong have adopted global standards like the Task Force on Climate-Related Financial Disclosures (TCFD) and the International Financial Reporting Standards (IFRS), which have pushed companies, especially listed ones, to prioritize ESG at the corporate level. However, he underscores the need for ongoing education and engagement with companies to help them understand the value of these disclosures.
“As more countries align with global standards, we’ll likely see a more consistent approach to ESG across the region,” Cheung predicts.
Investor Expectations
Investor expectations around green building certifications remain as a screening criterion, according to Cheung. He shares that a survey conducted by Knight Frank among ultra-high-net-worth individuals in 2023 revealed that building certification is a critical screening criterion for about 46% of investors globally, rising slightly to 48% in Asia.
Cheung also notes the importance of energy efficiency ratings and renewable energy in investment decisions. “A challenge in many APAC countries is the lack of a transparent in building energy efficiency” he says, citing Singapore as an exception with its transparent data on building energy and efficiency.
Interestingly, Cheung observes a growing interest in electric vehicle (EV) charging infrastructure among investors. “While tenants have traditionally not prioritized this, it’s becoming increasingly important,” he remarks, particularly for multinational corporations tenants looking to reduce their Scope 1 emissions by transitioning company vehicles to electric.
Climate Resilience: A Growing Concern
Climate resilience is becoming a crucial consideration in the Asia-Pacific real estate sector, Cheung asserts. He points to recent extreme weather events, such as the super typhoon in Hong Kong and record-breaking heatwaves, as factors that have accelerated awareness and action.
“In response to these challenges, there’s been a shift towards incorporating climate risk assessments in project planning,” says Cheung. He mentions that standards and frameworks like the International Sustainability Standards Board (ISSB) and TCFD are encouraging companies to conduct scenario analyses to anticipate future climate risks and integrate mitigation measures into their designs.
However, Cheung cautions that many developers and infrastructure operators have not yet fully embraced this approach, leading to vulnerabilities. He emphasizes the key role of property management companies, including the development of climate resilience action plans and to carry out climate vulnerability assessments.
The ESG Challenges and Opportunities Ahead
Cheung identifies several major ESG challenges and opportunities for the real estate sector in the Asia-Pacific region. One of the primary challenges is ensuring that companies genuinely integrate ESG principles throughout the entire real estate lifecycle, rather than just at the corporate level. “There’s a risk of greenwashing if a company makes bold ESG commitments but fails to implement them at the asset level across all stages of the property lifecycle,” he warns.
To bridge this management gap, Cheung outlines six key expectations for stakeholders in the real estate sector:
- Asset Owners should understand the importance of ESG in avoiding the risk of stranded assets and securing a premium on their properties in long term. “In markets like Hong Kong, we’ve seen a significant ‘brown discount’ for buildings lacking ESG provisions,” he notes.
- Asset Acquirers need to evaluate the ESG risks associated with their investments to avoid overpaying. Cheung suggests that sustainable finance frameworks and taxonomy can guide these decisions.
- Occupiers and landlords must align on the importance of ESG. He cites Singapore’s Green Mark certification as an example where tenants must comply with stringent green fit-out requirements to lease space in top-tier buildings.
- Valuers are expected to incorporate ESG risks into their valuation processes. “This is still in its early stages in Asia Pacific, but it’s crucial to start collecting and integrating ESG data into valuation models,” Cheung advises.
- Property Managers play a vital role in helping clients quantify ESG data and ensure timely due diligence, which is essential for building resilience and sustainability across portfolios.
- Lenders must develop robust methodologies for ESG quantifiability and incorporate these into their financial frameworks. “Many lenders currently lack the data and technical expertise to assess these risks effectively,” Cheung points out.
Avoiding Greenwashing and Embracing Genuine ESG Integration
When asked about the prevalence of greenwashing, Cheung is cautious but firm. “I wouldn’t say that companies are actively engaging in greenwashing, but many still seem focused on meeting only the minimum compliance requirements,” he observes. He stresses the importance of going beyond mere compliance and genuinely committing to ESG principles.
“Certifications alone aren’t enough to create real value,” he says. “While they’re a good starting point, what really matters is the substance behind them.” He advises that we should start to focus on substantial elements like data transparency, energy efficiency, the adoption of renewable energy, social value creation, climate resilience, and green leases.
In conclusion, Cheung emphasizes that companies that embrace ESG in a comprehensive and transparent manner will not only enhance their reputation but also secure long-term financial and operational benefits. “There are significant challenges, but also substantial opportunities for those willing to go beyond the basics and genuinely embed ESG into their operations,” he concludes.