Covid-19 has been kind to the environment

By Charlene Chin

/ EdgeProp Singapore |

May 7, 2020 5:50 AM SGT

SINGAPORE (EDGEPROP) - If there is ever a silver lining to the Covid-19 pandemic, it would be that the earth has managed to get a much needed breather from the harmful attacks of its inhabitants.

Worldwide, otherwise polluted cities such as New Delhi, Bangkok and Seoul have reported its clearest skies ever. Wuhan — the capital city of China’s Hubei province where the virus is said to have originated — experienced its cleanest air on record for February and March during its 10-week lockdown. The pandemic has forced human activity to slow down its pace — global travel, manufacturing, even construction — keeping most people snug at home.

As economic activity slumps, much better has it been for the environment we live in. Eugenia Jackson, global head of ESG (Environmental, Social and Governance) research at Allianz Global Investors, writes that environmental and climate issues are likely to return to the top of countries’ agenda after economic recovery has been ascertained in the immediate aftermath of the pandemic. “The environmental benefits of the slowdown in economic activity — such as cleaner air, cleaner water and less traffic — will be calculated, quantified and publicised,” she states.

Looking ahead, Jackson says, “We expect this data will provide incentives for governments and businesses to develop strategies to reduce the environmental impact of economic activity.”

The built environment has a part to play. With the building industry estimated to account for some 40% of annual global greenhouse gas emissions, scrutiny over how the real estate sector operates will be closer than ever, notes financial services UBS Asset Management in a whitepaper.

A greener future

Already, the trends are leaning towards greener buildings. Data from Google Trends shows that web searches for ESG in the real estate sector for Asia Pacific started to gather pace from 2017 onwards, and has now plateaued to a new norm, says UBS.

Jun Sochi, who leads the facilities and engineering arm of Cushman & Wakefield that helps to operate buildings, finds that sustainability has increasingly become a customer mandate.

“Now, we are speaking to them about sustainability. They want to know how we can help them drive sustainability in the delivery of our services,” says Sochi in a previous interview with EdgeProp Singapore.

In addition, UBS has observed that there has been a trend of large occupiers requiring minimum green certifications to commit to leases, paving the way for other occupiers to follow suit.

The impact of climate change on buildings has also become more evident, which UBS believes would propel asset owners into “greater action”. Erratic weather, for instance, can quickly degrade building structures, corrode facades and impose more stress on operational systems.

The capital market has also helped to drive sustainable buildings. The emergence of sustainability-linked loans (SLL) allows borrowers to cut their borrowing rates in return for meeting certain sustainability performance targets.

UBS expects the growth of SLLs to lead to an increase in the financial incentives for firms to improve their sustainability performance.

Proceeds from green bonds and loans are also expected to be channelled into projects that provide clear environmental benefits.

Another incentive to green financing would be the recognition gained from the industry. While less quantifiable, the recognition could lead to rewards that can potentially be “significant and long-lasting”, says UBS.

EDGEPROP SINGAPORE - Search interest for ESG in real estate (Credit: Google Trends; UBS Asset Management, Real Estate & Private Markets, Research & Strategy)

Search interest for ESG in real estate (Credit: Google Trends; UBS Asset Management, Real Estate & Private Markets, Research & Strategy)

Potential hurdles

But what are the existing hurdles for buildings to go green? Although the primary resistance is higher upfront costs, UBS says the eventual financial impact would be due to a confluence of factors.

As regulations start to catch up, the costs of owning a building that does not meet minimum environmental standards could rise in the near term. Singapore was the first country in Southeast Asia to pass a bill in 2018, taxing carbon emissions at US$3.20 ($4.52) per ton of carbon emissions.

Other countries in Asia Pacific implemented this earlier. In 2012, Japan enforced such a scheme, while China has been trialing an emissions trading scheme in several pilot cities, with an eventual plan of rolling out a national cap-and-trade programme — a form of climate policy that limits emissions (cap) and allows companies to buy and sell allowances that let them emit only a certain amount (trade).

Meanwhile, the implementation of a carbon tax could push the power sector to switch to cleaner energy sources, potentially causing emissions and costs to fall, suggests research from the Georgia Institute of Technology.

The dynamics of how this plays out in Asia Pacific would vary across markets given the different levels of accessibility to alternative energy sources, says UBS. The geography of Japan, for instance, lends itself access to energy sources such as hydropower and — more controversially — nuclear power. On the other hand, Singapore’s ability to generate renewable energy is constrained by its small land size.

Technology would also impact costs. For example, the prospect of higher costs due to a carbon tax might prompt a building owner to switch to more efficient heating, cooling and lighting systems which could then substantially lower greenhouse gas emissions and its accompanying expenditure, states the whitepaper.

On that note, advancements in technology would allow costs for relatively older technologies to fall exponentially over time, making it cheaper for building owners to go green. This was the case of solar panels, which saw prices fall 76% between 2007 and 2017.

As the real estate sector moves towards a greener future, early building adopters could be rewarded with higher rents, occupancy rates and asset values, says UBS, citing empirical evidence. In comparison, the converse is true for buildings that lag behind.

Buildings, united

Given the awareness of the role green buildings can play, many cities are moving ahead of their respective governments. The C40 Cities network connects 96 cities worldwide, committing to carry out “the most ambitious goals of the Paris Agreement at the local level”.

In 2018, 19 cities — including Sydney and Tokyo — pledged to cut carbon emissions by ensuring that new buildings emit zero carbon by 2030. As at early April 2020, the list has expanded to 28 cities, highlights UBS.

For a context of the emerging risk climate change brings, research by risk consultancy Verisk Maplecroft found that out of a total 500 cities studied, 11 of 15 cities most at risk from rising sea levels are in Asia, which has a number of gateway cities dotted along rivers and coasts in the region.

Nevertheless, Jackson is hopeful that the pandemic “could usher in a wave of green investments, as many countries have already made zero-carbon pledges and will likely make [green-friendly] post-crisis investments in infrastructure and public services”.

If that happens, what Greta Thunberg, the 17-year old Swedish environmental activist said at the UN Climate Action Summit will ring true: “The world is waking up. And change is coming.”

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