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ESG and its positive impacts on the Vietnam's real estate market

Xuan Pham • 07/06/2022

By the end of 2021, Vietnam has about 200 green buildings across the country

Not long ago, Environmental, Social and Governance (ESG) was dismissed as superfluous and unnecessary when it came to commercial and industrial real estate. Today, ESG has become a “must-have” and is viewed as a huge opportunity as issues such as climate change pose a real risk to the value of assets of almost every company across the globe. How has this game-changing concept transformed the real estate market?

At the United Nations Climate Change Conference in 2021 (COP26), Vietnam demonstrated its commitment to achieving net-zero carbon emissions by 2050. According to a report by Cushman & Wakefield, about 40% of emissions come from real estate, including commercial and residential. By the end of 2021, Vietnam has about 200 green buildings across the country, according to the Vietnam Green Building Council (VGBC). To achieve the set environmental goals, Vietnam needs more high-quality, sustainable buildings to reduce environmental damage and costs.

The ESG concept sets clear benchmarks with sustainability indicators related to business performance. It should be noted, ESG and sustainability are two commonly used terms that are often used interchangeably. However, the definition of ESG is somewhat broader, extending beyond the traditional measure of "sustainability" with a focus on business operations. The basic explanation of each of the ESG factors is understood as follows:

  • Environmental (E) includes the impact an organization has on environmental areas such as energy, greenhouse gas emissions, waste, climate change and resource scarcity. 
  • Social (S) focuses on how the organization impacts the people it employs as well as the communities which it operates in, including labor rights, land acquisition, workplace/ workforce health and wellness, safety, diversity and community impact. 
  • Governance (G) examines how the organization governs itself including board structure and composition, executive compensation, business ethics and shareholder rights.

To support that future, the urban ecosystem needs to be at the heart of urban and development planning. While some might argue that’s a constraint on development, urban building in the right direction is a worthy trade-off. This also creates many opportunities for developers, owners, residents, and strategic departments to promote creativity to create a livable city.

Singapore is a good example of effective sustainable urban planning. Since 2005, the Singaporean government has introduced a Green Mark target and scoring system for all real estate projects. In addition, they also offer a financial support policy for participating businesses committed to reducing emissions and negative environmental impacts. Singapore's commitment has yielded spectacular results, with more than 49% of buildings in the country achieving the government's "green" standard.

In Vietnam's real estate market, there are a number of certification systems like Green Mark such as LOTUS, LEED that help assess the performance of buildings in terms of energy use, emissions, design, and level of construction and working environment. In Ho Chi Minh City, some office buildings that have been granted LEED certification include Deutsches Haus, Friendship Tower, President's Place, Phu My Hung Tower, Saigon Center 2, all located in the heart of District 1. In Hanoi, some prime examples are Techcombank Tower, Capital Place and Landcaster Luminaire.

The demand for industrial assets such as land, factories and warehouses has increased rapidly, mainly from the manufacturing, e-commerce, 3PL and retail sectors. As a field with great environmental impact, industrial investors must pay more attention to the planning process to reduce emissions, ensure a safe working space and preserve the living environment for employees and surrounding local residents. Green growth in the industries will also contribute to upgrading and streamlining the value chain, which will help them strengthen resilience against supply chain disruptions.

The above points still lean heavily on the E - environment factor in the whole ESG cluster. To achieve the other two, real estate investors must bring on initiatives that can impact the community in and around the building such as green spaces, parks, or libraries, childcare rooms for employees. Investors are looking to understand how the CRE industry can be leveraged to improve “social good” and have broad impacts beyond the scope of operations. Specifically, at the asset level, it is important to understand how assets engage with and enhance the communities which they operate in—beyond a workplace. It is necessary to also address and keep the integrity of business ethics and management vision.

Theoretically, it is not difficult to achieve the ESG criteria, as the difference in ratio between actual construction cost of green buildings and conventional buildings is not significant. Trang Bui, General Manager of Cushman & Wakefield Vietnam, analyzed: “In reality, the biggest obstacle is still the time and effort the developers have to exert to establish an ESG-compliant design from the get-go. In the long term, green buildings can be considered an investment for the future as property developers and operators begin to see benefits in terms of energy savings, resources, and reduced cost of upgrades and repairs.”

Ms. Trang shared, "Many major global pension funds are putting pressure on many developers and owners to apply ESG principles to attract investment capital. With the stream of foreign capital pouring into Vietnam, unsustainable assets will be less competitive and at risk of being obsolete as foreign investors increasingly require strict ESG measures.”

Right now, investors need a business strategy associated with long-term value not only for the business but also for society and the environment. Reducing the effects of climate change is unequivocally in the long-term interests of all businesses. As Cushman & Wakefield continues towards our 2050 net zero commitment globally, we will work towards net zero for all of our Asia Pacific offices.

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