Environmental, social and governance (ESG) principles and practices are firmly established at the forefront of many companies’ corporate agenda.
As sustainable development gains momentum, more companies are setting net-zero greenhouse gas emissions targets. With real estate accounting for a large proportion of the carbon footprint in service-oriented economies such as Hong Kong, workplaces are one of the most obvious and impactful areas that can help corporates achieve their ESG targets. This report discusses the role of ESG in creating sustainable workplaces in Hong Kong, paying particular attention to social and governance practices and policies.
Environmental, social and governance (ESG) principles and practices are firmly established at the forefront of many companies’ corporate agenda.
As sustainable development gains momentum, more companies are setting net-zero greenhouse gas emissions targets. With real estate accounting for a large proportion of the carbon footprint in service-oriented economies such as Hong Kong, workplaces are one of the most obvious and impactful areas that can help corporates achieve their ESG targets.
Although environmental elements such as green buildings remain the focus of ESG in the property sector, addressing social and governance criteria are required for the successful implementation of a comprehensive ESG framework, especially for corporate real estate occupiers. By addressing all three ESG pillars, businesses can demonstrate their commitment to sustainability, social responsibility and ethical business practices, while attracting and retain talent and investors who prioritise ESG.
Hong Kong’s geography, corporate culture, building design and living environment have combined to create a unique workplace ecology. Office landlords and occupiers must gain a thorough understanding of how these components relate to and interact with each other to inform future workplace design and achieve ESG goals. Property stakeholders in Hong Kong continue to experience a steep learning curve as corporate occupiers push for greener offices, necessitating significant changes to workplace design and office leasing strategies.
CBRE has identified three key priorities that will underpin future workplace strategies in Hong Kong
Achieving net-zero emissions goals;
Accommodating flexible working; and
Addressing employee health and wellness.
The transformation stage will require three key enablers (the 3Ls):
Leadership endorsement; and
Recent years have seen Environmental, Social and Governance practices and principles evolve from being a nice-to-have to the forefront of many companies’ business agenda. As one of the world’s leading cities and commercial real estate markets, Hong Kong is ideally positioned to drive ESG initiatives through its built environment.
Although ESG has traditionally been associated with green buildings and energy saving, it has now broadened to encompass a broader range of objectives. This report discusses the role of ESG in creating sustainable workplaces in Hong Kong, paying particular attention to social and governance practices and policies.
- National pledges to achieve net-zero greenhouse gas emissions, tighter ESG compliance in listing rules and a post-pandemic emphasis on employee health and wellness have sharpened the corporate focus on ESG, prompting companies to overhaul their corporate mission and review real estate strategies with the aim of reducing their carbon footprint.
- As of Q1 2023, there are 1,570 listed companies occupying 32.3 million sq. ft. of space in Hong Kong’s Grade A office market. These companies, listed on major stock exchanges around the world, are at the forefront of the drive to realising ESG objectives.
- While the focus of ESG in the real estate industry primarily relates to green building features to address environmental issues, strategies to cover social and governance elements of the ESG framework are now assuming greater importance.
The three pillars of ESG
ESG at the core of workplace strategy
By fully committing to and addressing the three pillars of ESG, businesses can demonstrate their commitment to improving the environment; strengthening social responsibility; and promoting ethical business practices. These three pillars will comprise the core of future workplace strategies.
Considers environmental features in the workplace to ensure it is sustainable and minimises negative impacts on the planet.
Involves social aspects of the workplace to promote fairness, inclusion and well-being, thereby exerting a positive impact on society.
Ensures transparency, ethics and accountability via monitoring, benchmarking, policies and standards, resulting in enhanced business sustainability.
The evolution of the workplace
The evolution of the modern workplace
The workplace has undergone significant change over the last two decades as advances in technology and the emergence of a diverse range of working styles and cultures drive a shift away from traditional office-based work and towards more collaborative and flexible formats.
From office cubicles to collaboration to hybrid working
In Hong Kong, CBRE has classified the evolution of the workplace into four distinct generations spanning from Workplace 1.0 (pre-2000) to Workplace 4.0 (in the present day). Each generation has been characterised by shifts in office design and work culture norms, as summarised below:
Workplace 1.0 (Pre-2000s)
- Traditional offices using this format typically featured cubicles for most staff and separate rooms for senior employees designed to offer status, privacy and minimise distractions.
- Workplaces of this type featured limited flexibility and promoted independent working over collaboration. External communication was mostly desktop-based, with heavy reliance on paper documents requiring substantial storage space.
Workplace 2.0 (2000s)
- This period saw the increasing adoption of long benches, fewer cubicle workstations and less separate rooms for managers to help promote communication and the more effective use of space.
- Asian cultural norms, corporate hierarchy and the need for both face-to-face communication and privacy mean many local and Chinese companies in Hong Kong retain office designs in this format.
Workplace 3.0 (2010s to pre-pandemic era)
- Office design during this period emphasised activity-based work, offering flexibility to match tasks with a suitable working environment.
- Open-plan layouts with shared desks, common areas and various kinds of staff amenities became popular to drive collaboration and promote a more dynamic workplace culture.
- Communication is largely web-based and reliant upon wireless devices. Paperless operations reduce the need for storage space.
Workplace 4.0 (pandemic-era to present)
- This format updated Workplace 3.0 to embrace hybrid working as the pandemic-driven shift to remote working spurred the need for video conferencing and other communication technologies.
- Workplace 4.0 emphasises flexibility and allows employees to work in a way that suits their individual needs and preferences.
- Office designs under this format have a much stronger emphasis on staff wellness.
The four generations of workplaces
Workplace 1.0 (Pre-2000s)
- Private cubicle workstations
- Separate rooms for senior staff
- Lots of cabinets and storage space
Workplace 2.0 (2000s)
- Own desks
- Combination of long benches and cubicle workstations
- Fewer separate rooms for senior staff
Workplace 3.0 (2010s to pre-pandemic era)
- Shared desks
- Activity-Based Working (ABW)
- Plenty of common space
- Limited cabinets
Workplace 4.0 (Pandemic era to present)
- Workplace 3.0 + remote working
- Office as an option to go
- Technology support for remote working
ESG in Hong Kong’s workplaces
Why is office-based work still popular in Hong Kong?
Although hybrid working has emerged as a key trend in the wake of the pandemic, office-based work remains key to communication and collaboration. In Hong Kong, there are other cultural and environmental factors at play that encourage people to work from the office, leading to higher rates of office attendance than in other global gateway cities. Corporates with ESG-friendly offices that promote sustainability and wellness will command an advantage in the war for talent.
High living density
- Hong Kong's living space is small by global standards, with a median per capita living area of just 170 sq. ft. This is significantly lower than the sq. ft. in other advanced Asian cities, such as Seoul and Singapore, as well as western cities.
- A 2022 CBRE survey entitled “Voices from Hong Kong: How will people live, work and shop in the future” found that:
- 44% of respondents do not have a dedicated work/study area at home, a level significantly higher than both the Global (39%) and Asia Pacific (34%) averages.
- over 20% of respondents said their technology and workplaces at home were not set up to support flexible work. Shorter commutes to the office.
- Hong Kong has a highly developed and efficient public transportation system, underpinned by the Mass Transit Railway (MTR), which covers most of the city.
- About half (48%) of Hong Kong’s 3.77 million working population has convenient access to MTR stations within a 10-minute walking distance from their home. 95% of the city’s Grade A office buildings are within a 10-minute walk from an MTR station exit.
- Good accessibility with shorter commutes are key factors contributing to more frequent office visits in Hong Kong compared to other major cities.
Integrating ESG into workplaces
Robust demand for office-based working in Hong Kong is prompting companies to recognise the need for greener and more flexible office designs that can meet employees’ higher expectations while accommodating evolving workstyles. Offices now serve as a platform for companies to demonstrate their commitment to ESG.
Sustainable development as a global trend
- In response to climate change, countries are joining forces to address environmental issues and promote sustainable development to reduce carbon emissions.
- There are 195 signatories to the Paris Agreement worldwide, including China and the U.S.. The agreement is a legally binding international treaty that aims to address climate change by reducing carbon emissions. Most signatories have committed to achieving net-zero emissions by 2050.
- Buildings have been identified as a key contributor to carbon emissions. To meet net-zero emissions by 2050, various energy efficiency standards and incentives schemes for building owners are being implemented by different governments.
- Sustainable development is not only a priority at the building level, but also in workplaces. Authorities and major stock exchanges worldwide have introduced regulations or guidelines that require companies to disclose their ESG practices to demonstrate their commitment to sustainable and responsible business practices. Growing commitment to net-zero targets
- 42% of the Fortune Global 500 companies have delivered or publicly committed to delivering a significant climate milestone by 2030 according to Climate Impact Partners, a solution provider for action on climate.
- CBRE 2022 Global ESG survey found that nearly 70% of respondents reported a stronger focus on ESG strategies, with no significant regional variations.
- As the shift towards sustainability gains momentum, businesses that fail to incorporate ESG into their agenda will risk falling behind their rivals and undermine their long-term competitiveness. ESG advantages for businesses
- Research by Bain & Company and EcoVadis indicates that the extent of a firm’s sustainability measures correlates with better financial performance.
- Companies that lead in ESG practices have higher employee satisfaction, leading to faster growth and greater profitability. These companies have up to five points higher three-year revenue growth and six points higher profit margins than those with less-satisfied employees.
- Companies with ESG practices can also attract a wider range of investors seeking sustainable investment opportunities. Implementing workplace ESG
Green buildings and the role they play in reducing greenhouse gas emissions continue to dominate discussion around ESG and real estate. However, related aspects such as equality and inclusion, wellness, social responsibility and corporate governance are taking on greater importance in establishing a comprehensive framework for corporate entities to achieve ESG success. While developers and landlords focus on greening Hong Kong’s built environment, corporate occupiers can contribute to efforts by implementing ESG principles in their workplaces.
This section summarises the major ESG principles in the workplace
- Create a green identity
- Less is more
- Minimise the use of natural resources
- Track and share
- Safeguard air quality
- Promote diversity, equity and inclusion
- Cater to different working styles
- Improve employee wellness
- Enhance workplace safety
- Be socially responsible
- Value employee engagement
- Establish benchmarks and accountability
- Enhance transparency
- Lead by examples
Reducing greenhouse gas emissions and achieving net-zero emissions are among the most frequently cited ESG goals as they are easily measurable and justified by long-term cost savings. Compared to a decade ago when green buildings were relatively uncommon, office landlords in Hong Kong are now in a far better position to provide the real estate needed to support sustainable workplaces. Green office materials have become widely available and increasingly price competitive, while technological advances are driving paperless operations and reducing discretionary travel. Key objectives and strategies to address environmental performance in the workplace include:
Create a green identity
- Lease space in green buildings
- Participate in green incentive schemes / leases
- Achieve green certification for workplaces
Less is more
- Adopt open-plan offices and minimise materials used in office fit-outs
- Re-use or donate old office fixtures, fittings and furniture
- Promote a paperless office
- Implement recycling programmes
- Reduce the number of bins and encourage staff to minimise waste
Minimise the use of natural resources
For employee well-being
While the ESG conversation continues to focus primarily on reducing office carbon footprint, efforts to promote wellness, inclusion and equity should be assigned similar importance. The pandemic-driven shift in how and where people work has led to an urgent need to enhance the flexibility of office design. Improving the social aspect of ESG can also help companies maintain a happy and healthy workforce and attract and retain talent. Some of these aspects are measurable but others are intangible. Key objectives and strategies to enhance social performance in the workplace include:
Promote diversity, equity and inclusion (DE&I)
- Ensure the workplace is disability-friendly; provide adjustable workstations and facilities to accommodate different heights and physical needs
- Provide enclosed spaces to accommodate privacy (e.g. mother’s room and prayer room)
- Encourage intergenerational collaboration and knowledge sharing
- Establish an office culture that embraces diversity of age, culture, experience, gender, race, skills and status
- Set policies to minimise discrimination and harassment
- Align salaries between genders and minority groups
- Implement a flexible dress code
- Establish policies and a corporate culture to facilitate hybrid working, based on needs
- Support remote working by reducing the digital divide; ensure employees are adequately trained and have secure offsite access to internal digital platforms and virtual communication tools
- Provide task-based zones to accommodate different needs and work styles (e.g. focused areas, phone booths and collaborative spaces)
Improve employee wellness
- Incorporate nature into workplace design by making use of natural light and biophilia
- Provide dedicated exercise and rest areas
- Run in-house exercise sessions and/or offer gym/sports subsidies
- Acknowledge the importance of employee mental health and provide support
- Encourage flexible working to facilitate work-life balance
- Offer healthy food, snacks and beverages in staff cafés and vending machines.
- Use eco-friendly fit-out materials and zero-VOC paints
- Monitor and maintain air quality by using Indoor Air Quality devices; reduce employees' exposure to inhalable particulate matter (PM2.5 and PM10)
Enhance workplace safety
- Equip the workplace with ergonomic furniture
- Position office equipment and facilities to ensure universal accessibility
- Consider local occupational health ordinances and align workplace design with relative requirements
- Hold regular training sessions to uphold workplace safety
- Implement a clean-desk policy to reduce clutter
Be socially responsible
- Organise and encourage employees to participate in volunteer programmes for disadvantaged and vulnerable groups
- Offer student mentorship and internship programmes Value employee engagement
- Carry out regular staff surveys, make sure feedback is assessed, addressed and communicated back to employees
- Facilitate both formal and informal employee knowledge sharing sessions
- Invest in continued education and professional training
For corporate transparency, accountability and ESG policy continuity
With leadership, enforcement and policy continuity combining to form the backbone of ESG implementation, effective corporate governance is key to ESG success. The “G” in ESG includes a broad spectrum of corporate governance concepts which are not necessarily property focused. As it is the least measurable part within the ESG framework, governance is relatively less frequently addressed in real estate dialogues. Companies must nevertheless dedicate more effort to enhancing workplace transparency, ethics and accountability to drive workplace improvements across all ESG pillars.
Establish benchmarks and accountability
- Appoint ESG officers to establish corporate ESG goals and communicate with employees and external stakeholders
- Set KPIs to ensure all employees adhere to ESG goals
- Senior leadership should be engaged and lead by example
- Tie management remuneration to corporate ESG achievements (e.g. carbon footprint reduction, employee wellness and satisfaction)
- Be open and transparent with employees and other workplace stakeholders about ESG performance.
- Send regular internal communications about corporate ESG commitments (e.g. leadership townhalls and staff newsletters)
- Appropriately disclose ESG performance to investors, business partners and the public
The ESG landscape in Hong Kong
Buildings account for 90% of electricity consumption in Hong Kong, making the real estate sector a significant source of carbon emissions. Within the commercial sector, offices consume the most energy, with air conditioning responsible for 45% of this energy use. Promoting ESG initiatives in the workplace is therefore key to reducing the city’s carbon footprint and achieving sustainability goals. In addition to the recommendations mentioned previously, several Hong Kong-specific strategies can be leveraged to achieve ESG success.
Green identities and compliance.
- To promote sustainability and foster partnerships with landlords, companies can opt to lease space in green-certified commercial buildings that have pre-existing eco-friendly features installed to comply with interior green certification such as WELL, LEED and BEAM Plus. Alternatively, occupiers should lease space in buildings operated by landlords who offer collaboration or incentive schemes for green initiatives.
- Companies in Hong Kong are also required to comply with the Buildings Energy Efficiency Ordinance. Requirements include retrofitting office units with a total floor area of 500 square metre (about 5,400 sq. ft.) and above to adhere to minimum energy efficiency design standards and requirements.
Promote carbon footprint reduction on the road
- With its extensive network across Hong Kong, the MTR system offers a low-carbon option for office employees and provides easy point-to-point access from home to workplaces and between major commercial districts. Leasing offices in buildings near MTR stations can therefore help reduce the city’s carbon footprint.
- Proximity to public transportation can also enhance a company’s appeal to current and potential employees. Analytical tools such as CBRE’s proprietary Commute Optimiser provide on-demand employee commute analysis to help in office location decisions.
- To further achieve sustainability goals, companies can consider adopting electric vehicles as company cars, especially as the government aims to cease new registration of fuel-propelled private cars in 2035.
DE&I in workplace
- According to government projections, Hong Kong’s labour force aged 65 or above will increase by 23% between 2023 and 2033, with this cohort set to comprise 8% of the city’s total labour force by end-2033. Companies will therefore need to adopt office designs to accommodate this demographic.
- Workplace features that cater to the needs of older workers can include those that promote accessibility and ergonomic features, thereby creating a more inclusive and supportive environment for all employees.
- Training and technology will also be needed to enhance older employees' proficiency in new technologies and promote a diverse and inclusive workplace.
- Businesses can also offer flexible working styles such as remote work or flexible hours to accommodate the needs of employees with different caregiving responsibilities or health conditions.
- Apart from age and gender, the Disability Discrimination Ordinance in Hong Kong provides statutory protection against discrimination for disabled employees.
- Companies in Hong Kong must comply with local laws related to workplace safety, including the Occupational Safety and Health Ordinance.
- In April 2023, the maximum penalty for serious breaches of the Occupational Safety and Health Ordinance was raised to 10 million Hong Kong dollars and a two-year jail term (previously five hundred thousand Hong Kong dollars with a one-year jail term), indicating that the government is placing a greater emphasis on workplace health and safety.
- Key provisions set out by the Occupational Safety and Health Ordinance include first-aid equipment and training for a designated number of staff based on the number of employees of a company, as well as ensuring a safe work environment with unobstructed means of escape from the office and proper guarding of hazardous areas.
Achieving workplace ESG objectives
Identifying workplace ESG enablers
Companies in Hong Kong can leverage a wide range of tools to achieve their workplace ESG goals. These include the adoption of advanced technologies; forming partnerships with landlords; and designing workplaces to meet green certification standards. By leveraging these enablers, businesses can not only meet their ESG goals, but also contribute to a more sustainable future, enhance their reputation and attract and retain employees and stakeholders.
- ESG-friendly workplaces typically feature a range of technologies such as: (1) automation and motion detection systems to minimise the use of natural resources; (2) devices to monitor and improve ventilation and air quality; and (3) platforms to facilitate remote working and virtual communications.
- Internet of Things (IoT) technologies that read, share and integrate data across different technology platform can provide a holistic picture of overall ESG achievement. Data collected from devices and sensors, workplace administration and human resources can be consolidated for matrix analysis and adjusted to help track and achieve ESG goals.
Enable : Standardise technology across the office and make all tools equally accessible anywhere, including facilities for virtual meetings and other digital infrastructure.
Utilise : Remove productivity barriers by utilising plug-and-play technology, installing technology that simplifies the workplace, and rolling out use automation and sensors to reduce energy consumption.
Monitor: Adopt integrated technology platforms to track and manage energy and water usage data. These platforms can generate big data to improve employees experience and optimise office improvements.
- Forming a strong landlord-occupier partnership can help both parties set ESG goals and work together to monitor and improve carbon footprint within their building and workplace. Collaboration should involve data sharing to enhance transparency.
- Selected major developers in Hong Kong have launched green initiatives and programmes to incentivise occupiers to adopt sustainable practices and monitor their energy and water consumption along with waste generation. These programmes aim to promote sustainability and support efforts to create more environmentally responsible workplaces.
- CBRE expects green leases or leases with green elements to become increasingly popular in the coming years. This will see landlords and tenants collaborate to implement sustainable goals and practices in the real estate they own and occupy (see Chapter 6 for detailed discussion).
Change management and identity gaining
- Establishing ESG-friendly workplaces requires strategic planning. While this typically involves a long-term commitment throughout the lifecycle of a dedicated workplace, it can potentially extend to implementing an organisational culture shift. Change management is therefore vital for ESG transformation.
- Workplace ESG is a holistic framework that integrates hardware, software and corporate leadership and policies. The key elements of this framework are discussed in Chapter 3.
- While obtaining green certificates is not the ultimate objective of establishing ESG-friendly workplaces, recognition by one of the leading certification bodies can create a favourable impression among clients, investors and talent. Achieving certification is therefore highly recommended. Several certification systems are available in Hong Kong, such as BEAM Plus, LEED and WELL. While the three systems all pertain to sustainable design and construction practices, BEAM Plus and LEED certification place a stronger emphasis on environmental sustainability, while WELL focuses on the health and well-being of building occupants.
Hong Kong Green Building Council’s Building Environmental Assessment Method Plus certification.
U.S. Green Building Council’s Leadership in Energy and Environmental Design certification.
International WELL Building Institute’s WELL Building Standard.
CBRE’s Hong Kong office
Our well office
As the global leader in commercial real estate services and investment, CBRE recognises the impact we have on our communities, clients, employees and stakeholders.
In 2020, CBRE Hong Kong relocated its two offices to One Pacific Place in Admiralty and Manulife Place in Ngau Tau Kok. The objective behind the move was to create a world-class agile work environment that supports employees across multiple generations and enables collaboration to deliver service excellence, reflecting our commitment to responsible practices.
To foster employee collaboration, CBRE decided in 2020 to consolidate its Hong Kong Island office from two-and-a-half floors in Three Exchange Square, Central to a single floor of 20,257 sq. ft. net floor area in One Pacific Place. The firm also doubled the size of its Kowloon office by relocating from The Gateway to Manulife Place.
To ensure employee engagement with the firm’s ESG goals at all levels, numerous staff surveys, workshops, and townhalls were held throughout the office relocation process.
CBRE’s office relocation also reflects the evolution from “Workplace 3.0” to “Workplace 4.0”, involving a shift towards more collaborative and flexible working formats.
What have we done?
- CBRE Hong Kong had a vision to foster a collaborative and engaging culture for employees.
- Research and surveys were conducted to study employees’ and leaders’ working style preferences to better understand their needs.
- Thorough research identified the optimal ratio of workstations, focus space, collaboration areas and meeting spaces. Solution
- ABW was identified as the most attractive solution. The format provides an agile working environment as well as allowing space for workstations and collaboration space empowered by new technologies.
- This preferred working style also aligns with CBRE’s “Workplace 360” global workplace guidelines. Implement
- Stakeholders were engaged at all levels through seminars, workshops and townhalls to ensure understanding and alignment of project progress and gather feedback.
- CBRE gathered inputs and opinions from staff through methods such as encouraging staff involvement in furniture selection via testing and voting as well as meeting room naming competition.
- New policies and guidelines, including a clean desk policy, paperless policy and agile desk were introduced for all staff to encourage a flexible and eco-friendly workplace.
Design and Fit-out
- The workplace design is based on a “city and park” concept.
- New ABW settings provide dedicated focus areas for quiet work, internal meeting spaces and ergonomic workstations. The office is also equipped with standardised technology.
- The workplace now includes a mother’s room for nursing employees and wellness room for staff to relax and recharge Sustain and refine:
- Staff were regularly consulted and surveyed to obtain insights into their engagement and satisfaction.
- Water and air quality are tested on an ongoing basis to ensure employee wellness.
CBRE’s new offices feature a “city and park” design theme and activity-based working; a format that promotes employee productivity and well-being through thoughtful design and technology.
In addition to providing a eco-friendly and sustainable working environment, CBRE is committed to assembling a diverse workforce in an equitable, safe and inclusive workplace that is guided by the firm’s RISE values – Respect, Integrity, Service, and Excellence.
Redefining the workplace
A flexible workplace strategy that enables employees to work at their best, supported by design and technology. Featuring no assigned seating and a clean desk policy, the workplace offers a wide variety of work settings for employees, supporting flexibility, productivity, wellness and mobility.
The office hosts a comprehensive suite of physical and operational features that cater to employees’ health and well-being. These include ergonomic sit-stand desks, air quality sensors, wellness rooms, natural elements of the outdoors, healthy eating options and enhancements to facility protocols and HR initiatives.
Interactive LED TV Walls
Each office has an LED TV screen displaying the real-time front of house view of the other office, enhancing visibility and connectivity of both offices and improving event management.
Host is a workplace experience app offering that connects employees to spaces, services, amenities and communities.
This is a global CBRE initiative that provides staff with a sanctuary away from their desks to eat, relax and collaborate. The Hong Kong RISE Cafés offer quality and healthy F&B to staff and clients.
The concierge table in the One Pacific Place office is a one-of-a-kind sculptural installation created by local wood upcycling artist Parry Ling.
Gold Rating under WELL V2 Pilot Certification Scheme for One Pacific Place Office Key winning factors:
- Air quality: Installation of IAQ sensors with LED display, displaying ongoing real time data for transparency
- Greenery: Provision of green features, including potted plants and green walls, visible from over 75% of workstations
- Health and safety: provision of water dispenser within 100 feet walking distance from each corner of the office; supply of healthy snacks; height adjustable desks and ergonomic chairs.
- Wellness: Efficient lighting design to support focus and acuity in darker space; office features open views and natural daylight; provision of wellness room for relaxation and recharging and mother’s room for nursing employees.
10 key areas of WELL include:
Air, water, nourishment, light, movement, thermal comfort, sound, materials, mind and community
- Interior Design of the Year (Commercial) Award by Build4Asia
- Gold in HONG KONG Design Awards 2021 (Interior Design - Corporate & Commercial)
ESG metrics – key indicators
CBRE’s Hong Kong office has made significant efforts to enhance employees’ well-being in the workplace, which is one of the key social elements of ESG. The company performs an annual survey to track staff engagement and gather feedback in order to continuously improve as an organisation and measure performance across indicators such as safety and wellness, diversity, equity and inclusion as well as learning and development. This survey is one of the governance metrics under ESG to help identify areas of success as well as opportunities for improvement.
Mapping green building demand in Hong Kong
Green buildings are key to achieving ESG objectives
While ESG transformation can theoretically occur in any built environment, leasing space in a green building is the most expeditious route for a company seeking to meet its ESG goals, including achieving accreditation for efforts to create an ESG-friendly workplace. Although green building adoption in Hong Kong continues to lag that in other leading gateway cities in Asia Pacific, investors and developers are increasingly constructing new green buildings or refitting existing properties to improve their environmental performance.
Portfolio landlords accelerate green building construction
- As of June 2023, 30% of Hong Kong’s Grade A office buildings were green certified, with 80 buildings having unexpired accreditation. Of these, 75 buildings are single-owned, reflecting high rates of ESG adoption by portfolio landlords. The 34 million sq. ft. involved represents 40% of total Grade A office stock in Hong Kong.
- Of the single-owned Grade A office buildings in Hong Kong, 40% have green certificates. By net floor area, this represents 51% of total office space.
- The core submarkets of Greater Central, Wan Chai & Causeway Bay and Greater Tsim Sha Tsui have a combined 16.4 million sq. ft. of green space, accounting for 38% of total Grade A office stock in these districts.
- The largest volume of green space is in the CBD, with 65% or 9.3 million sq. ft. of Grade A office space in Central possessing green accreditation. Also dominated by single-owned buildings, Hong Kong East ranked second by district, hosting 7.4 million sq. ft. of green space across 15 buildings.
Green ratio climbs as new buildings become available
- The percentage of green certified office space in Hong Kong’s emerging submarkets is rising as much of the city new office buildings (which are more likely to be green certified) are being constructed in such areas.
- 42% of office area in Hong Kong’s decentralised office submarkets is green certified, representing 18.1 million sq. ft. of space.
- Due partly to the number of single-owned buildings on Hong Kong Island being 28% higher than in Kowloon, Hong Kong Island is home to 47 green buildings (21 million sq. ft.), compared to 30 in Kowloon (12 million sq. ft.)
- 72% of the buildings completed in Hong Kong in the ten years from 2013 to 2022 were green-certified within two years after their occupation permits were issued. This is well above the 11% in the previous ten-year period between 2003 to 2012.
- Green office buildings feature prominently in the upcoming supply pipeline. As of June 2023, 10 out of the 24 Grade A office buildings scheduled for completion between 2023 and 2025 have obtained a provisional green rating or are targeting to obtain green certification. This accounts for circa 70% of the space involved.
- As new green buildings become available in Hong Kong, CBRE expects to see more occupiers making flight-to-quality or “flight-to-green” moves to accredited buildings in the coming years.
Tighter regulatory requirements spur demand for green buildings
Strong underlying demand for ESG compliant office space
- With ESG goals now at the forefront of corporate agendas, companies are increasingly integrating such considerations into their decision-making processes. Listed companies, in particular, are required to comply with listing rules and guidelines for ESG practices.
- The ongoing development of ESG regulatory frameworks suggests they may be extended to non-listed large corporations. For instance, all large companies (with over 250 employees) and listed companies in the European Union are required to disclose risk and opportunities related to sustainability, including social and environmental information, under the Corporate Sustainability Reporting Directive, which will be fully implemented in 2026.
- Discussions regarding the reporting of Scope 3 emissions in Greenhouse Gas Protocol standards will lead to stronger ESG mandates for non-listed companies, which they are also required to disclose to business partners.
- The rapid adoption of ESG in the commercial real estate sector is set to result in growing demand for green office buildings. Listed companies are among the first movers seeking to comply with ESG reporting requirements by leasing space in green buildings.
- As of Q1 2023, there are 1,570 listed companies (on one or more major stock exchanges) with a presence in Hong Kong’s Grade A office market, occupying 32.3 million sq. ft. of space. Of these, about 1,100 entities have 16.5 million sq. ft. of office space in non-green buildings. This will form a significant quantum of demand for ESG compliant buildings as listed companies advance their green objectives.
Finance and legal sector drive green office adoption
- The highly-regulated financial industry is most committed to leasing space in green buildings in Hong Kong. This stems partly from the Green and Sustainable Finance Cross-Agency Steering Group, co-led by the Hong Kong Monetary Authority and the Securities and Futures Commissions, which aims to make climate-related disclosures mandatory and ensures the financial sector aligns with the Task Force on Climate-related Financial Disclosures framework by 2025.
- Banks, financial institutions and insurances companies (listed and non-listed combined) currently occupy 25.6 million sq. ft. of Grade A office space in Hong Kong, close to half or 11.8 million sq. ft. of which is in non-green buildings.
- The concentration of legal firms in Central, where many of Hong Kong’s green office space is located, underpins the sector’s high occupancy rate in green buildings, which stands at 68%, the highest rate of major industry sectors.
- Despite the considerable efforts of property developers and commercial landlords in green office construction and retrofitting, just 40% of real estate industry occupiers are in green buildings.
- Other professional services firms also have a relatively small green office footprint compared to the major high value-add white-collar industries.
- As firms in lower-margin industries tend to have offices in less prominent office buildings, their green office footprint is smaller. Despite a growing need for green office space, at a time when relocation and fit-out costs are high, adoption by companies in these industries is expected to remain relatively weak. European and U.S. firms lead the way
- Due to the more aggressive net-zero carbon emission targets being implemented in the U.S. and in some European countries, multinational corporates from these regions tend to be at the forefront of green office adoption both globally and in Hong Kong.
- Net Zero Tracker, which covers over 2,000 of the largest publicly-traded companies in the world by revenue, shows that the median year of net zero or other similar climate targets for U.S. and European firms is 2035 and 2040, respectively, while that for China/Hong Kong is 2050.
- European and U.S. firms currently occupy a combined 22.3. million sq. ft. of space in Hong Kong’s Grade A office market, with close to half (49% or 10.9 million sq. ft.) of this space being in non-green buildings. There is no discernible difference between U.S. and European firms in terms of the share of green real estate that they occupy, which stands at 53% and 56%, respectively.
- Despite the larger aggregate footprint of local Hong Kong and mainland Chinese firms in the office market, fewer than 35% of these companies have offices in green buildings.
- As mainland Chinese firms account for a relatively small share of Hong Kong’s Grade A office market, they lag in their adoption of green office space. However, mainland China’s dual carbon target, which has set the near-term goal of reaching peak carbon emissions before 2030 and achieving carbon neutrality by 2060, should gradually drive ESG adoption amongst mainland Chinese firms.
The way forward and recommendations
What’s next for Hong Kong’s workplaces?
As governments, regulatory bodies and multinational corporations commit to achieving net-zero emissions targets, ESG initiatives will continue rank highly on the corporate agenda. While the primary focus of ESG-related will remain on the ‘E’ on ESG, CBRE expects the “S” and the “G” to garner more attention in the coming years.
While developers and landlords will continue to construct green buildings and retrofit older properties to enhance their environmental performance, a stronger emphasis will be put on improving the workplace to enhance employee welfare.
This is an area that extends beyond CapEx investment to achieve sustainability goals, and potentially involves changes to corporate culture through policy reform. CBRE believes this trend will trigger a fundamental change to workplace ecology.
With the pandemic having changed the way in which people work and how business gets done, future workplace strategies will need to facilitate flexible working. Being a densely populated city, Hong Kong’s built environment can make working from home impractical for many individuals.
Although this will ensure that offices remain a key place of work, the way workplaces are configured will need to evolve. Next-generation workplaces should also be designed to promote social responsibility and employee wellness. Good corporate governance will play a vital role in driving this change.
CBRE envisages future workplace strategies in Hong Kong to focus on three key areas (the 3 As):
- Achieving net-zero emissions goals;
- Accommodating flexible working; and
- Addressing employee health and wellness.
The transformation stage will require three key enablers (the 3 Ls):
- Landlord-tenant collaboration;
- Leadership endorsement; and
- Leading-edge proptech.
Augmenting workplaces through ESG
Creating an ESG-friendly workplace requires enhanced collaboration between tenants and landlords. This involves the two parties promoting open communication and sharing responsibility for implementing ESG practices. CBRE expects green leases and green clauses within leases to gain traction as a means to facilitate this collaboration.
- A green lease is a legally binding agreement that includes clauses requiring both landlord and tenant to take eco-friendly approaches in operating and occupying a leased property.
- Green leases are usually KPI-based, with objectives to promote real estate and workplace sustainability.
- Key areas covered in green leases include but are not limited to building carbon footprint, energy efficiency, water conservation, waste management, indoor air quality and occupier safety and wellness.
- Green leases help improve transparency and set goals and benchmarks for landlords and occupiers to track ESG performance.
- Initiatives embedded in green leases can help reduce operating costs for both landlords and occupiers in the long run.
- With green finance gaining popularity, green leases can highlight landlords’ and occupiers’ commitment to sustainability, providing evidence for both parties to secure preferential loan terms.
- Green contract terms make landlords and occupiers accountable for their respective ESG KPIs, allowing both parties to achieve more with less.
- Commitments made in green leases may help occupiers gain credit for interior green certification.
- ESG-compliant tenants are likely to prefer landlords who are ready to enter into green leases.
- While Hong Kong has seen no green leases registered to date, office landlords and occupiers are learning fast.
- At present, landlords and occupiers are opting to drive and achieve ESG commitments via non-binding initiatives to minimise the risk of legal disputes. This may gradually change as regulatory requirements tighten.
- Hong Kong’s high-rise and multi-tenanted built environment poses a challenge to green lease adoption. Landlords must balance the concerns, interests, costs and benefits of all occupiers in their buildings.
- The city’s relatively short lease terms (typically three years) also make investment in data tracking and sharing more costly than in built environments where occupancy is more stable.
Green leasing practices
Alternative green documents and promotion programmes
Landlords and/or tenants unwilling to enter into green leases can consider alternative options.
These options are not legally-binding and mainly involve the use of incentives to encourage better environmental and social performance.
Many of Hong Kong’s leading landlords are already facilitating these types of non-legally binding green initiatives with their tenants. Together with other ESG incentive schemes, office buildings offer a good starting point for corporates’ ESG programmes.
Side letters or memorandums of understanding
Side letters or memorandums of understanding bring landlords and occupiers together via commitments and targeted action plans to achieve mutually agreed ESG goals.
- These documents do not form part of a formal lease agreement and therefore are not usually legally binding.
- Excluding commitments and action plans in formal leases allows both parties to set ESG expectations for each other, indicate incentives, track progress and make necessary adjustments, without the hassle of running into potential legal disputes.
- Although not legally binding, side letters and memorandums of understanding encourage both landlords and tenants to commit to ESG goals and offer incentives to achieve them. They also provide evidence to support an entity’s efforts in taking eco-friendly actions to promote sustainability and other ESG initiatives.
Landlord green programmes
- Apart from side letters and memorandums of understanding, leading developers in Hong Kong are encouraging office tenants to participate in volunteer green programmes.
- Volunteer green programmes usually involve tangibles and intangibles to promote workplace sustainability and wellness via campaigns such as awards and recognitions, charity sponsorships and other social activities.
- These non-contractual programmes function as landlords’ soft support to tenants who already have clear ESG goals and can also play a role in promoting ESG to occupiers who are lagging in ESG adoption. Data sharing
- CBRE expects future green leases to facilitate energy efficiency data sharing for the benefit of both landlords and occupiers to make informed decisions to drive ESG success.