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The rise of green real estate

UOB Asset Management
UOB Asset Management11/18/2021 08:10 PM GMT+08  • 10 min read
The rise of green real estate
With the trend towards sustainability investing, there is now intense focus on sustainability within the real estate sector.
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Photo caption: In partnership with UOB, Singapore Exchange and GRESB, UOB Asset Management provides investors with the means to access these sustainable REITs through the launch of the UOB APAC Green REIT ETF. It is the first Asia Pacific green REITs ETF in the world using GRESB Environmental Scores

The COP26 climate conference has brought attention to all sources of carbon emission, including buildings. With the trend towards sustainability investing, there is now intense focus on sustainability within the real estate sector

In recent years, sustainability has been a pressing issue, especially in Asia. Extreme weather events like floods and heat waves have become increasingly common, the need for immediate action is now more apparent. Countries in Asia have begun setting climate commitments and implementing a range of policies. Japan, South Korea, Taiwan, Hong Kong and Malaysia aim to achieve their net zero targets by 2050, while China and Indonesia have set their sights on 2060 targets.

Rising awareness towards climate change has also translated to greater international collaboration. In the most recently held 26th United Nations Climate Change Conference of the Parties (COP26) summit, we saw developments such as the Global Methane Pledge, Deforestation Pledge and Coal Pledge gaining traction.

Numerous countries in Asia also announced and renewed commitments towards combating climate change. China updated its Nationally Determined Contributions (NDC) while Vietnam announced targets to achieve net zero carbon emissions by 2050, alongside phasing out coal and becoming a signatory of the Global Methane Pledge. India, the world’s third largest emitter, has also pledged net-zero carbon emissions by 2070, with targets to increase the country’s renewable sources share to 50% by 2030.

See: UOBAM sees risks for 4Q but is positive on long-term growth assets

The global efforts to combat climate change have been positive, providing encouragement towards the role that governments are playing. However, the United Nations highlighted that current climate action falls short of keeping global warming below 1.5°C. More can be done, especially in traditional sectors such as real estate.

Green buildings

Today, real estate contributes to approximately 40% of the world’s carbon emissions. With global building stock expected to double in area by 2060, many are concerned that there will be increased carbon emissions from the sector in coming years. Key cities in Asia like Singapore, Jakarta, Hong Kong and Tokyo are being increasingly exposed to climate change risks, such as rising sea levels, typhoons and floods, leading to greater pressure on real estate companies in Asia to move faster to reduce their carbon emissions.

One of the trends to watch is the development of green buildings. What are Green Buildings? Green buildings are buildings that reduce or eliminate negative impacts on the environment and climate. Definitions of green buildings may vary, but can be tied to carbon and energy objectives such as net zero emissions or 1.5°C compliance.

Rapid expansion of building construction and the need to reduce emissions present a US$17.8 trillion ($24 trillion) investment potential in the green buildings sector in emerging markets until 2030. While green buildings have obvious environmental benefits, Real Estate Investment Trusts (REITs) holdings would enjoy similar benefits of significant operational cost savings, shorter payback periods and an overall increase in the value of their assets which tie back to an increased REIT value.

In a recent survey conducted by JLL in June this year, 70% of firms in the Asian Pacific region were found to be willing to pay rental premiums for green buildings and across Asia Pacific. Indicating that society is shifting towards an emphasis on green and sustainable spaces in a bid to address the climate concerns and companies are willing to pay a premium to meet new demands. Increasingly, businesses are distinguishing themselves in an environmentally conscious workforce through offering a working environment which matches a wider sustainable ethos.

Closer to home, a year-long study undertaken in Singapore by Squire Mech (jointly with RSP Architects Planners & Engineers, Building System & Diagnostics and Arcadis Singapore) made a strong case for the value of green buildings. In the survey, buildings which achieved various Green Mark ratings of Gold, Gold Plus and Platinum, were analysed from a lifecycle cost perspective and compared. The study found that Green Mark buildings reap greater energy and water savings throughout their lifecycle, and these savings outweigh the early investment cost. In fact, the greener the buildings, the higher the cost savings.

Investor awareness

With increasing awareness and understanding on Environmental, Social and Governance (ESG) and sustainable investing, investors are starting to appreciate how sustainability impacts the valuation of the REITs they are investing in. The bottom-line of REITs is closely linked to how its operations are managed. Sustainable REITs are able to better manage their energy usage and greenhouse gas emissions while enjoying better tenant retention and higher occupancy rates.

In partnership with United Overseas Bank (UOB), Singapore Exchange (SGX) and Global ESG Benchmark for Real Assets (GRESB), UOB Asset Management provides investors with the means to access these sustainable REITs through the launch of the UOB APAC Green REIT ETF (the “Fund”).

UOB APAC Green REIT ETF is the first Asia Pacific green REITs ETF in the world using GRESB Environmental Scores. Launching in Asia, the Fund aims to replicate the iEdgeUOB APAC Yield Focus Green REIT index (the “index”) which is designed to select potentially high-yielding and environmentally positive real estate assets within the Asia Pacific region, including Japan. As a green REIT ETF, the Fund seeks to attain three core objectives: 1) to deliver high dividend yield to investors, 2) to select high quality, environmentally-sound real estate assets with good growth potential and 3) to contribute to sustainability outcomes and greening of the real estate sector.

Covering 50 higher-yielding REITs, the index aims to deliver superior environmental performance by using the GRESB real estate assessment to track factors including energy and water consumption, greenhouse gas emissions and green building certification. As a sustainability leader with over three decades of investment expertise in Asia, UOB Asset Management has rigorously constructed the UOB APAC Green REIT ETF which may help investors invest for both profit and purpose.

Photo: Samuel Isaac Chua/The Edge Singapore

Important Notice & Disclaimers: This document is for general information only. It does not constitute an offer or solicitation to deal in units (“Units”) in the UOB APAC Green REIT ETF (the “Fund”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information contained in this document, including any data, projections and underlying assumptions, are based upon certain assumptions, management forecasts and analysis of information available and reflects prevailing conditions and the views of UOB Asset Management Ltd (“UOBAM”) as of the date of this document, all of which are subject to change at any time without notice. In preparing this document, UOBAM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by UOBAM. 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Investors should note that the Fund is not like a conventional unit trust in that an investor cannot redeem his Units directly with UOBAM and can only do so through the participating dealers, either directly or through a stockbroker if his redemption amount satisfies a prescribed minimum that will be comparatively larger than that required for redemptions of units in a conventional unit trust. The list of participating dealers can be found at www. uobam.com.sg. An investor may therefore only be able to realise the value of his Units by selling the Units on the Singapore Exchange Limited (“SGX”). Investors should also note that any listing and quotation of Units on the SGX does not guarantee a liquid market for the Units. An investment in unit trusts is subject to investment risks and foreign exchange risks, including the possible loss of the principal amount invested. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before deciding whether to subscribe for or purchase any Units. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. The Fund is not in any way sponsored, endorsed, sold or promoted by and/or its affiliates and SGX and/or its affiliates make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the iEdge-UOB APAC Yield Focus Green REIT Index (the “Index”) and/or the figure at which the Index stands at any particular time on any particular day or otherwise, The Index is administered, calculated and published by SGX. 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UOB assumes no direct or consequential liability for any errors in or reliance upon this document. This advertisement has not been reviewed by the Monetary Authority of Singapore UOB Asset Management Ltd Co. Reg. No. 198600120Z

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