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Real estate investments with a positive CSR impact

Interview - December 18, 2019

Environmental, social and corporate governance (ESG) investments have played an increasingly key role in the Japanese real estate market. Ryuichi Horie, Co-Founder & CEO of CSR Design Green Investment Authority, discusses the evolving landscape of ESG investment in Japan and the operations and services of his company within this sphere.



In the first quarter of 2018, Tokyo overtook London as the world’s busiest real estate market, with investment volumes reaching 9.1 billion USD. Many factors influenced these investment waves, such as the policies of Abenomics, the low interest rate and the increase of corporate earnings. Could you give us brief analysis of the Japanese real estate market, and the trends in green activities and being environmentally friendly in the real estate sector?

Before talking about Abenomics and real estate investment in general, I believe that the biggest change in the Japanese market is the GPIF (Government Pension Investment Fund) in September 2015, which is a package of Abenomics. Since then, the Japanese investment community has started focusing on ESG. The GPIF is the biggest Government Pension Fund in the world, (with approximately 150 trillion YEN AUM), and they began ESG investment in the equity sector, but have been steadily diversifying their investment all the way to real estate. One example of this are Green bonds. Green bonds were launched on the market last year, issued by JREIT, by the name of Japan retail fund. Since then, more than 10 JREIT’s, including Mitsubishi Estate have issued green bonds. They are mostly used in order to purchase or refinance the acquisition of Green buildings, but also to renovate existing buildings. These are currently the major trends in the Japanese ESG market.

Moving forward, it is also important to discuss the importance of GRESB (Global Real Estate Sustainability Benchmark), which is currently known as the environmental, social and governance (ESG) benchmark for real assets, which includes infrastructure on top of Real estate. They started operation back in 2009, and we started to help them back in 2011, and the number of Japanese Real Estate companies was at 61 last year, including 38 JREITS out of 60. Market cap wise, that is almost 90% of Japanese JREIT Market, meaning it is becoming increasingly common for companies to participate in ESG benchmark. ESG wise, we can say that the JREIT market is currently one of the leading markets in the world.


Could you explain to our readers why you believe thee green initiatives are becoming such an important topic in the Real Estate sector?

There are many reasons for this growing trend. Firstly, the GPIF is really pushing investment managers to invest. Secondly, I believe that managers are slowly starting to understand that incorporating ESG in your activities will not make you lose money, but rather make money in the long run. This is concept of PRI (Principles for Responsible Investment). Before the PRI era, it was common to only think about making money, without talking into consideration what will happen to the economy, to the environment, or to the well being of the eco-system. However, we are beginning to realise that without keeping in mind the importance of the environment and society as a whole, it becomes impossible to make money in the long run. It is important to underline that our world is constantly changing: from the regulations (CO2 emissions), all the way to customer behaviour, mentalities are evolving. The Japanese market has historically been an opportunistic market, until the mid 2000’s. People used to only invest for 2-3 years, but today people are investing for the 7-8 years, and therefore need to think about the future – where ESG incorporation is essential.


Could you define a green investment, and the trues meaning behind ESG?

ESG is formed of 3 letters: Environmental, Social and Corporate governance. I will now define each letter, and help you understand the broad and wide spectrum that it covers. 

For the environmental part (E), there are several aspects: Firstly, energy efficiency. Secondly, reducing carbon emissions - which is one of the top priorities. Two other indicators will be to reduce water consumption and also to reduce waste emission. These 4 indicators are the most important – with energy efficiency and reducing carbon emissions talking a predominant role. However, there are some other criteria which are also taken into account such as indoor environment quality (CO2 concentration indoors), smoking indoors (damages health) and a few others.

Lets move onto the social part behind ESG (S), which contains 4 subsectors: Firstly, the happiness of the employees of real estate companies themselves, which is the key to ensure the success of the company. Secondly, customers - which are extremely important.  Inside a building, 70 to 80% of the energy consumption is consumed by tenants themselves. Engagement with tenants is important to make it a greener building, and their happiness is obviously a key factor, as this will make them stay in that building and keep it as green as possible. Thirdly, the suppliers or supply chain. For Real Estate company owners, the biggest supplier is PM (property managers). In order to chose PM’s, it is important for Real Estate companies to analyse and to determine whether they are taking into account the ESG aspect in the balance, and whether they comply with the rules. Fourthly, the community engagement plays a fundamental role. It is absolutely crucial for the community to live well together, to be able to organise events for all, to feel a positive and relaxing environment.

The G refers to the management, but is not specific to Real Estate. Factors include diversity of management, no bribery or corruption, etc.  As you can notice, these are applicable to any industry and to any company.


Could you please highlight the key milestones of your company since its establishment in 2009, your key projects, and the key trends of the future of CSR Design?

The very first project we got involved in was research for MLIT (Minister of Land, Infrastructure, Transport and Tourism), on responsible property investment. Then, one of our biggest milestones is when we got connected with BRESB in 2011, through this research network. They wanted us to help with a survey they had started in 2009, which analysed property investment. In the first year in 2011, we had a total of 20 participants, including 5 JREITS, and we therefore started our research. Since then, the number of participants has been increasing every single year.

In 2016, GPIF started to push PRI, and ESG investment became extremely common, and started to boom. We therefore became ESG investment advisors, and we have since then gathered information of various markets around the world, in order to advise clients of the worldwide trends. Thanks to GPIF, our clients started to care about other ratings such as ESE ratings. We are now acting as a total ESG advisor, as of 2016, and take great pride in it.

Recently, the ESG is developing into the next stage into what call “impact investment”, and I am personally the author of a document which analyses the trends of impact investment in the Real Estate sector. Needless to say, impact investment covers all aspects of finance, not just real estate. 

Another big trend is the work reform. We can notice recently that the younger generation is attracted by open space offices, with larger common areas, and this directly influences the well being of employees. This trend has been happening in New York, Paris, London or Sydney, and is now becoming a big trend in Japan. Therefore, what I did is to create the Japanese version of Health and Well-being dedicated certification system. Traditionally, we have “green buildings certification systems”, and in Japan we have CASBEE and in the USA they have LEEE. This is basically a comprehensive rating system for environmentally friendliness ranging from energy to water, to air quality or even to site selection. However, the health and welfare of occupants is not a key factor of these ratings. In the USA, they have WELL, which concentrates systematically on the well-being of occupants. We believe this is the way to go, and the Japanese government decided to create the equivalent. They launched the new certification known as CASBEE Wellness Office, which focuses on criteria such as “Activity based working” (being able to select where you work in the office), or biophilia (feeling connected to nature) which are health and wellbeing factors which enable companies to attract young talent to their companies.

I believe that in the future, we must broaden the spectrum of Green Building, in order to include “Health and Wellbeing”, and then we will be able to tackle the environmental problems, but also the social problems, and monitor these results in order to disclose them to the public.


Could you briefly explain to us where and how see the future of CSR Design?

We want to continue to go beyond real assets. We have expanded from real estate to infrastructure, but we are still focusing on real assets. I want to continue expanding in order to transform society to a better one, by implementing policies that will change the direction of money, in order to enhance the social and environmental impact it can have. Today, 25% of our work is research and advisory to governments, both national and local. We monitor international trends, in order to be able to advise the ones leading our country. We have already expanded from real estate to sustainable finance, by monitoring Europe (who leads in sustainable finance). I hope that in the next 5-10 years, we could have expanded our activities, and lead the world towards a better society!