INSIGHTS

2019.03.05

R&D DISCUSSION Vol. 07

Environmentally friendly architecture and healthy spaces drive the economy
ESG Investment and Wellness Offices [Part 1]

Shinichi Tanabe Professor, Department of Architecture, School of Creative Science and Engineering, Waseda University

R&D DISCUSSION TOP

Q: Why has there been such an increase in interest in environmentally and health-conscious buildings in recent years?

A: As you know, environmental conservation and sustainable society efforts have been led by international organizations and developed countries, but in recent years, attention has rapidly increased because companies' efforts on the environment and society have begun to become a major factor in decision-making among global investors. This is "ESG investment," which has become more and more common recently. It is an acronym for Environment, Social, and Governance, and investment decisions are made by analyzing corporate activities using these three criteria [Figure 1]. In other words, corporate value is measured not only by financial information such as profit margins shown in financial statements as in the past, but also by "un" financial information (elements that are not yet financial information but will definitely become important in the medium to long term, specifically, how to address global warming, biodiversity, employee health, women's participation, office comfort, information disclosure, etc.). It is common knowledge worldwide that these elements support corporate growth and increase the future potential of corporate value. It is not a goal or obligation, but rather it generates profits and is viable as a business, so it has spread rapidly.

The term ESG was included in the "PRI (Principles for Responsible Investment)" proposed by the United Nations in 2006, and has since spread among institutional investors. In the past, there was a negative view that environmentally and socially conscious corporate management had low returns and that environmentally friendly construction was expensive, but since the Lehman Shock in 2008, there has been reflection on the pursuit of short-term profits, and now ESG investment has become a major trend in Europe and the United States, and is spreading among individual investors as well. In Japan, the wind finally changed in 2015 when GPIF (Government Pension Investment Fund), one of the world's top institutional investors, signed the UN's PRI and began ESG investment.

Furthermore, in recent years, there has been a global trend to withdraw investments and loans (divestment) from companies that operate businesses that have a negative impact on the environment, such as fossil fuel-related companies, and to use the money for ESG investments. Currently, Japanese companies are highly regarded for their environmental friendliness, but they are lagging far behind in terms of women's participation in the workforce and information disclosure in English. In the future, we may see an increase in cases where investments will not be made unless ESG-related incorporation is written in English in CSR reports, and loans will be withdrawn from companies that do not have female executives.

Q: Specifically, what indicators do investors use to make investment decisions?

A: For real estate companies, the international benchmark is the Global Real Estate Sustainability Benchmark (GRESB), which was established in 2009. This does not evaluate the sustainability of each piece of real estate, but rather evaluates the overall ESG efforts of the real estate sector or fund that owns it. The evaluation items are wide-ranging, including the establishment of internal structures and policies, the disclosure of ESG information, efforts to reduce the environmental impact of owned real estate, and collaboration with tenants on environmental and social considerations. GRESB is managed by the same American organization as LEED (Leadership in Energy and Environmental Design) and WELL Building Standard, which are popular evaluation systems for buildings that are environmentally and health-conscious, and includes the acquisition of environmental performance certifications including LEED and WELL. In recent years, research has shown that the higher the GRESB rating of a real estate investment trust (REIT), the better its operational performance and the higher its returns, and GPIF, mentioned above, also refers to GRESB. Over the past year, real estate companies not only overseas but also Japanese companies have begun to obtain ratings.

Comparing the distribution of actual scores between 2012 and 2017, we can see that there has been an overall shift to higher levels [Figure 2]. Companies are improving their scores by making energy-saving renovations to their real estate holdings. In this climate, if no effort is made, the value of real estate will decrease (= brown discount), and it will eventually become a "stranded asset."

In recent years, research and analysis of the real estate value of environmentally friendly buildings has been conducted in Japan, and it is said that environmentally friendly offices are more likely to attract tenants even if the rent is higher, and that environmental performance has a large impact, especially in medium-sized buildings [Figure 3]. The Ministry of Land, Infrastructure, Transport and Tourism is currently working to promote the spread of ESG-conscious real estate stock in order to attract investment from both within Japan and overseas. I am also helping to create a new certification system to "visualize" health and comfort.

[Figure 1] What is ESG investment?
[Figure 2] Distribution of GRESB scores obtained in 2012 and 2017
[Figure 3] Real estate value of environmentally friendly property
[Figures 1-3: Courtesy of Shinichi Tanabe Laboratory, Department of Architecture, School of Creative Science and Engineering, Waseda University]
Continued in Part 2

PROFILE

Professor, Department of Architecture, School of Creative Science and Engineering, Waseda University

Doctor of Engineering (specializing in architectural environment)

Shinichi Tanabe

Shinichi Tanabe

Born in Fukuoka Prefecture in 1958. Graduated from the Department of Architecture, School of Science and Engineering, Waseda University in 1982, and completed the master's course at the same university's graduate school in 1984. Studied at the Technical University of Denmark from 1984 to 1986, and at the University of California, Berkeley from 1992 to 1993. Served as an associate professor in the Department of Architecture, School of Science and Engineering, Waseda University from 1999, and has been a professor there since 2001 (current position following reorganization in 2007). Served in positions including chairman of the Building Mechanical and Electrical Engineers Association, vice chairman of the Architectural Institute of Japan, and chairman of the Tokyo Metropolitan Environmental Council. Currently, he is chairman of the Society of Heating, Air-Conditioning and Sanitary Engineers of Japan, and director of the Housing and Built Environment Research Institute at Waseda University's Smart Society Technology Fusion Research Organization.

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R&D TOP

Update : 2018.09.21

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