Japan has risen to the highly transparent tier in the 12th edition of JLL’s Global Real Estate Transparency Index (GRETI) for the first time since the biennial survey was released in 1999. Amongst the sub-indices which saw higher transparency over the last two years, was environmental sustainability, particularly in relation to climate risk and resilience.
Sustainability and Japan real estate
Sustainability is one of the six subindices composing the GRETI index. Its score is based on ten factors including financial performance index, green building certification, energy efficiency, climate risk and resilience, green leases, and wellbeing.
Japan is well-established in the area of real estate sustainability globally. It has locally developed green building certification system and international equivalents have been widely in use. Additionally, it has introduced rigorous building energy efficiency standards and benchmarking based on national laws and regulations and prefectural ordinances. Meanwhile, responding to demand from investors and consumers, companies seeking long-term growth are increasingly disclosing sustainability information under wider environment, social and governance (ESG) reporting.
Reinforcing long-term decarbonisation goals for building emissions and benchmarking
Sustainability actions have accelerated since the Race to Zero campaign was launched by the United Nations Climate Change Conference in June 2020. The then Prime Minister Suga’s declaration to realise carbon neutrality by 2050 was followed by a quick set of actions – rolling out targets, strategies and roadmaps that stated clear long-term decarbonisation goals for building emissions and benchmarking. For example, the Green Growth Strategy and the Sixth Basic Energy Plan formulated in 2021. The same year, the Tokyo Metropolitan Government municipality published the Zero Emission Tokyo Strategy 2020 Update & Report, with a renewed target to halve carbon emissions by 2030, which is more ambitious than the national target of 46% carbon reduction by the same year.
Disclosing financial risks and opportunities relating to climate change
The Task Force on Climate-related Financial Disclosures (TCFD) is a private organisation established as per the request of the G20 in 2015. TCFD published recommendations in 2017 for companies to disclose information about managing financial risks and opportunities that climate change poses. In 2021, the Financial Services Agency mandated companies listed on the Prime markets to disclose TCFD-aligned reporting. As such, the number of disclosures increased significantly (Figure 1), contributing to higher sustainability transparency in Japan.
Figure 1: Climate-related financial disclosures that align with TCFD’s recommendations in Japan
Source: Task Force on Climate-related Financial Disclosures, September 2022
Voluntary commitments to actions are also active. As investors and financial institutions increasingly commit to Responsible Property Investment, a number of organisations have signed up to Science-Based Targets and Global Real Estate Sustainability Benchmarks.
Towards higher transparency in real estate sustainability
In 2020, Japan saw a 5% reduction in gross carbon emissions – a 22% reduction in net emissions compared with 2013. This presented constant progress as a result of efforts by the government and organisations together towards carbon neutrality and commitment to keep global warming to below 1.5 degrees Celsius.
Yet, there is scope for further improvement in transparency for real estate sustainability, and Japan will remain a major global real estate market to watch over the next two years.
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