Neil AndersonandMark Lam

Opinion | How Hong Kong’s landlords can work with companies to better achieve ESG and carbon goals

Hashing out a memorandum of understanding allows the setting of more ambitious, flexible and long-term targets, compared to fixed green leases

By adopting ‘ESG as a service’, landlords can make buildings greener, attract tenants committed to sustainability, and differentiate themselves in a competitive market

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Commercial buildings in Central on May 17, 2022. Buildings consume 90 per cent of Hong Kong’s electricity. Photo: Dickson Lee

Neil AndersonandMark Lam

Published: 3:30am, 9 Aug 2023Updated: 5:33am, 9 Aug 2023

The Hong Kong government has set an ambitious target to reduce its carbon intensity by 65-70 per cent by 2030 compared with 2005. Given that buildings consume 90 per cent of the city’s electricity, it’s clear that landlords – and their tenants – must work together if Hong Kong is to reach its goals and become a more sustainable city.

Fortunately, there has been growing momentum from developers and tenants to prioritise sustainability and environmental, social and corporate governance (ESG) considerations when selecting properties to lease.

Over the past two years we have noticed tenants placing a high priority on sustainability and ESG considerations when selecting properties to lease. They expect deeper collaboration with landlords on sustainability initiatives, including energy efficiency, waste management and green building certifications.

For example, when Hongkong Land initiated a pilot project for its Green Fit-Out and Operation Recognition Scheme, we expected only a few tenants to participate. When word got out, we received more than 30 requests to join the scheme.

Tenants now see their office space not just as a necessity, but as part of the company’s ESG strategy and employee wellness programmes, and they’re willing to pay for the service. According to consultancy JLL, Grade A office buildings in Hong Kong with green certification can charge rental fees up to 28 per cent higher.

Some people have called for green leases with legally binding clauses that compel landlords and tenants to comply with specific year-on-year targets or face penalties. But one problem with such contracts is that conditions beyond the signee’s control can have a huge impact on performance.