Reducing Greenwashing Practices in Malaysia’s Real Estate Developments
In an era where sustainability is increasingly a concern for consumers, investors and regulators, businesses are further incentivised to market their products and services as environmentally friendly. However, this may more often than not result in a deceptive practice known as greenwashing.
Greenwashing refers to the practice of making misleading or unsubstantiated claims about the environmental benefits of a product, service, or company. The term, coined in the 1980s by environmentalist Jay Westerveld, is a portmanteau of 'green' and 'whitewashing'.
In the real estate industry, greenwashing may take various forms, including overstating a building's energy efficiency, misrepresenting the environmental impact of construction activities materials, or making unfounded claims about a property's sustainability credentials.
Identifying greenwashing practices in real estate developments can be challenging - a property developer might advertise a building as 'green' or 'eco-friendly' based on a single environmental feature while ignoring other aspects that may harm the environment. For instance, a building marketed for its solar panels, but constructed using unsustainable materials and practices, could be considered an instance of greenwashing.
Harm to Society, Business and Environment
Research shows the real estate industry has a significant impact towards climate change, contributing to 40% of greenhouse gas emissions produced from the development and use of buildings.1 Buildings also represent the largest sector in terms of energy consumption, accounting for 35% of global energy usage. Additionally, they contribute significantly to CO2 emissions, with projections by the International Energy Agency suggesting a 50% increase in CO2 emissions by 2050.
Beyond environmental concerns, greenwashing carries further repercussions to society. It misleads consumers and investors who want to make environmentally responsible choices, undermining trust in greener homes and buildings while building scepticism among investors. Greenwashing also creates unfair competition, as developers that genuinely invest in sustainable practices may struggle to differentiate their products from those of less scrupulous competitors.
Indulging in greenwashing practises may ultimately backfire, resulting in financial and reputational harm. When examining the Chinese stock market, researchers found that the use of greenwashing by companies adversely affects the value of the company’s securities that were listed on the stock exchange.2
Progress Made in Reporting Standards
The European Union has recently introduced exemplary legislation in sustainability reporting. The Corporate Sustainability Reporting Directive (CSRD), which came into effect on 5th January 2023, strengthens and modernises the rules for companies reporting social and environmental information. It expands the reporting scope to include more large companies and listed SMEs, totalling approximately 50,000 companies. The CSRD aims to provide investors and stakeholders with necessary information for assessing climate change and sustainability risks, foster transparency about companies' impact on people and the environment as well as reduce reporting costs by harmonizing information requirements in the long term.
Additionally, the EU has developed a classification system for measuring sustainable activities, known as the EU Taxonomy, which sets performance thresholds for various environmental objectives.3 This system provides a standard against which companies' green claims can be assessed.
In Malaysia, frameworks and indexes have offered general guidance on ESG practices, but companies have been primarily responsible for devising their own metrics to ensure transparency in sustainability efforts. While sustainability reporting still has room for improvement, significant strides have been made in terms of regulation and the establishment of common indicators.
Last September, Bursa Malaysia introduced enhanced sustainability reporting requirements for the Main Market and ACE Market. The implementation will be carried out gradually, starting with the Main Market, where companies will be required to disclose common sustainability matters for financial years ending on or after December 31, 2023.
Plus, the International Sustainability Standards Board (ISSB) is actively working towards aligning sustainability reporting with financial reporting standards on a global scale, aiming to facilitate comparisons across global markets and provide stakeholders with greater assurance.
Emphasis on Green Building Certifications
Advancements in ESG reporting standards and standardised metrics may keep public-listed companies in line but do omit participation by privately-owned property developers and scrutiny of specific property developments. Green building certifications provide a more comprehensive solution in stemming greenwashing, but its implementation is not without shortcomings.
The biggest hurdle in green-building certifications in Malaysia is the low take-up rate, as certifications are voluntary. It is estimated there were about 389 Green Building Index (GBI) projects in 2021 in Malaysia.4 Although occupiers of green buildings benefit from long-term energy savings, there are no regulatory requirements compel certification nor is there an impetus for occupiers to review which buildings meet carbon-neutrality targets.
Furthermore, an older study suggests the majority of buildings sampled only obtained the lowest level of certification under the GBI and nearly 50% of the buildings rated “green” were not very different from non-rated buildings in the long-term.5 This means these buildings may lack the desired energy-efficient performance expected during its lifetime and carry an underwhelming positive-impact on Malaysian cities. Note that Malaysia has made a commitment to reduce its carbon emissions per unit of GDP by 45 per cent from levels in 2005, along with a global commitment towards the United Nations 17 Sustainable Development Goals (SDGs).6
While green building certifications do not guarantee the absence of greenwashing activities by the housing developers7 it does mitigate the environmental impact of buildings and assure consumers and investors alike of a certain level of legitimacy in eco-friendly marketing claims.
Critics have called for green building certification to be made mandatory8 or the various forms of green building certifications in the market to more stringent. However, as real estate developers still grapple with cost of construction materials and labour shortages resulting from the pandemic as well as an uncertain economic climate, the timing of drastic mandatory certification measures would be questionable. Moreover, based on GBI's findings, the additional expenses associated with adopting environmentally friendly practices in construction, including material and technological costs, can range from 0.7 to 11%. These costs are in addition to registration and renewal fees. However, long-term energy savings far outweigh the initial cost with an estimated 30 – 40% increased energy efficiency.
Yet steps have been made in the right direction - since 2016, the Public Works Department has made it mandatory for government building projects worth RM50 million and above to adopt the Malaysian Carbon Reduction and Environmental Sustainability Tool (MyCREST). Separately, the Penang Green Agenda 2030 (PGA 2030) is a comprehensive plan that aims to transform Penang into a green state by 2030. The plan includes a proposal to make green building certification mandatory for all new buildings.9
In the face of escalating environmental concerns such as heatwaves and flooding, it is crucial to prioritise transparency, verifiability, and standardised metrics when making green claims in the real estate industry. Although greenwashing poses a sly challenge, addressing this issue in Malaysia can pave the way for truly effective measures in tackling climate change, meeting sustainability expectations and fulfilling decarbonisation ambitions.
To learn more about ESG trends and insights within the real estate industry, check out PropertyGuru For Business’ ESG Report HERE.
References
- Carbon Reductions in a Leading Real Estate Corporation: A Case Study of British Land Company Proprietary
Madeleine Mercer1, Paul Dargusch2, Genia Hill3 2022:Case Studies in the Environment - Yang, Y., Zhang, J., & Li, Y. (2023). The effects of environmental information disclosure on stock price synchronicity in China. Heliyon, 9(5), e16271. https://doi.org/10.1016/j.heliyon.2023.e16271
- EU Taxonomy and the Future of Reporting, Harvard Law School Forum on Corporate Governance, by Holly Pettingale, Stéphane de Maupeou, and Peter Reilly, FTI Consulting, 4 April 2022
https://corpgov.law.harvard.edu/2022/04/04/eu-taxonomy-and-the-future-of-reporting/ - Demand for Green buildings in Malaysia - A Snapshot, FuturArc, by YY Lau & Veena Loh, 20 May 2021 https://www.futurarc.com/commentary/demand-for-green-buildings-in-malaysia-a-snapshot/
- IMPACT OF GREEN BUILDING RATING SYSTEMS ON THE SUSTAINABILITY AND EFFICACY OF GREEN BUILDINGS - CASE ANALYSIS OF GREEN BUILDING INDEX, MALAYSIA, Shraddha Pandey, MIT-UTM Malaysia Sustainable Cities Program, 2014−2015
https://malaysiacities.mit.edu/paperpandey - Sustainable Development Goals | Official Portal of Ministry of Economy (epu.gov.my)
Quoquab, Farzana & Sivadasan, Rames & Mohammad, Jihad. (2022). "Do they mean what they say?” Measuring greenwash in the sustainable property development sector. Asia Pacific Journal of Marketing and Logistics. ahead-of-print. 10.1108/APJML-12-2020-0919. - Is sustainable certification's ability to combat greenwashing trustworthy?, by Arne Nygaard
https://www.frontiersin.org/articles/10.3389/frsus.2023.1188069/full - Time to make green buildings mandatory?, Focus Malaysia, by Laura Lee, 4 February 2017 https://www.st.gov.my/images/article/news/2017/februari/Time_to_make_green_buildings_mandatory_0402.pdf
- PENANG GREEN AGENDA 2030, Green Buildings and Townships, June 2020
6_PGA-Sectoral-Formatted-Final-Report_GBT.pdf (pgc.com.my)
Get started with PropertyGuru For Business
.jpg)
