News and Views

ESG & Real Estate: Emerging Trends in Malaysia

March 24, 2024
MALAYSIA

In recent years, environmental, social, and governance (ESG) considerations have become an increasingly important topic for businesses, and this includes the real estate sector. An unprecedented global pandemic coupled with major flood and landslide events have contributed to pushing the ESG agenda to the boardroom.

Approximately 39% of total global emissions are attributed to real estate development, with 11% of these emissions generated by manufacturing materials used in buildings, while the rest is emitted from buildings themselves and the energy needed to power them.1  

While an ESG strategy reflects an organisation’s overall commitment to social good, sustainability, and ethical goals, these are no longer merely ideological concerns today.

Increasing Correlation between ESG and Finances

Globally, studies and trends have shown that addressing ESG issues corresponds with better financial gains. A report by the World Economic Forum found that companies that embed effective ESG practices generate more than 20% higher profitability on average.  

On the local front, ESG is increasingly being realised as a value driver as institutional investors who hold the purse strings seek ‘greener’ investments.

Last September, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said ESG assets are set to reach US$53 trillion (US$1=RM4.56) by 2025 and warned companies to shape up on ESG efforts or risk losing access to capital with a purpose.2 He added that institutional investors carry considerable collective influence with nearly RM2.2 trillion in assets under management and roughly RM750 billion in the local stock exchange.

Among Malaysia’s most notable institutional investors is the Employees Provident Fund (EPF), which began its transition into sustainable investing in 2021 with two targets; to have a fully ESG-compliant portfolio by 2030 and climate neutral portfolio by 2050.

On its website, EPF listed the construction industry as among six priority sectors with ESG expectations to be fulfilled, including specific core requirements and best tpractices. A separate policy on worker well-being will also be of concern to public-listed property developers and stakeholders.

As for Malaysian homebuyers, affordability and location have been the biggest concerns but there has been increasing awareness of climate change likely fuelled by major environmental disasters dominating local headlines over the past two years alongside the pandemic.

PropertyGuru’s Consumer Sentiment Survey H2 2022 showed increasing concerns and awareness from 85% of homebuyers surveyed on climate change.

Less “greenwashing,” Better Reporting

With increased scrutiny on implementation, it is only natural that regulation, reporting standards, and rating indexes to measure ESG efforts improve. The broad scope of ESG matters, coupled with uncertainties and a lack of standardised metrics, have made it challenging for stakeholders to compare organisations with one another.

Vague metrics for sustainability give room to greenwashing, where organisations use unsubstantiated claims to deceive customers and stakeholders into believing their efforts and products are environmentally positive.

While frameworks and indexes have provided general guidance on ESG practices, companies have been largely left to their own devices in reporting metrics that give assurance on sustainability efforts.

Although ESG reporting still leaves much to be desired, significant strides in Malaysia have been made towards regulation and creating common indicators. In September of last year, Bursa Malaysia announced enhanced sustainability reporting requirements for the Main Market and ACE Market in efforts.3 The staggered implementation begins with the Main Market and disclosure of common sustainability matters for the financial year ending (FYE) on or after Dec 31, 2023.

In April 2023, the government announced its intention to implement an ESG standards framework by the end of the year. The primary objective of this framework is to provide support and guidance to small and medium-sized enterprises (SMEs) concerning funding opportunities and capacity building as well as facilitate the transition to renewable energy sources. Such frameworks can revolutionise property development practices, playing a transformative role in the building industry while carrying a wider social impact.4  

Increasing scrutiny of sustainability metrics has also seen the ‘Big Four’ accounting firms expand their services to cater towards providing ESG assurances. On the global stage, the International Sustainability Standards Board (ISSB) is pushing to make sustainability reporting comparable to financial reporting to ease comparisons across international markets and assure stakeholders.

Infrastructure for Electric Vehicles

As the world gradually transitions from combustion engines to plug-in hybrids and electric vehicles, infrastructure such as charging stations for plug-in hybrid and electric vehicles (EVs) is an increasingly important need for property developers to address.

Back in August 2022, prime minister Datuk Seri Ismail Sabri Yaakob said that a legal, regulatory framework is set to be established for the development of EV charging infrastructure in the country. He announced that EV infrastructure development guidelines under the Electricity Supply Act 1990 (Act 447) would be enforced in the fourth quarter of 2022; however, those plans have been disrupted by a change in government.

Nevertheless, plug-in hybrids and EVs will eventually become a mass-market option here in Malaysia. In Budget 2023, the government extended import duty and excise duty exemption for fully imported EVs as well as excise duty and tax exemptions for locally assembled units.

These incentives will likely further spur the adoption of electric vehicles, consequently pushing high-rise homebuyers to seek buildings with charging infrastructure. Property developers need to factor these trends in their developments, not just to appeal to homebuyers but also to ensure properties are future-ready for a transition to EVs.

To learn more about ESG trends and insights within the real estate industry, check out PropertyGuru For Business’ ESG Report HERE.

References

  1. 2019 global status report for buildings and construction, International Energy Agency, December 2019.
  2. Companies must shape up on ESG (23 Sept 2022)
    https://www.mof.gov.my/portal/en/news/press-citations/companies-must-shape-up-on-esg-tengku-zafrul
  3. Bursa Malaysia Enhances Sustainability Reporting Framework
    With New Climate Change (Sept 26, 2022) REPORTING
    https://www.bursamalaysia.com/sites/5bb54be15f36ca0af339077a/content_entry5c11a9db758f8d31544574c6/63312a2439fba20d86ba8e16/files/26Sept_2022_Bursa_Malaysia_Enhances_Sustainability_Reporting_Framework_With_New_Climate_Change_Reporting.pdf?1664169009
  4. Malaysian real estate embarks on a sustainable journey: ESG framework sets the green standard (June 6, 2023) https://www.asiapropertyawards.com/en/malaysian-real-estate-embarks-on-a-sustainable-journey-esg-framework-sets-the-green-standard/

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