ESG Beyond E: Strengthening Social and Governance Standards in the Workplace

Given the stronger commitment to carbon-zero targets and greater adoption of flexible working during the pandemic, CBRE expects ESG will sit at the core of future workplace strategies, with “S” and “G” to garner more attention in the years to come despite the primary focus on “E”, according to the latest research report launched, “ESG Beyond E: Strengthening Social and Governance Standards in Hong Kong's Workplace”. 

ESG Beyond E in the Workplace 

Despite the prevalent trend of flexible working globally, office-based work remains popular in Hong Kong, thanks to the high living density and short commutes to the office. This has prompted companies to recognize the need for greener and more flexible office designs that can address employees’ needs and expectations while accommodating evolving workstyles. Offices now serve as a platform for companies to demonstrate their ESG commitment. 

The three pillars of ESG should be viewed as equally indispensable. Reducing greenhouse gas emissions and achieving carbon neutrality are among the most frequently cited ESG goals, as they are easily measurable and justified by long-term cost savings. However, efforts to promote wellness and DE&I should be assigned similar importance for employee well-being in future workplaces. The Implementation of “E” and “S” relies on effective corporate governance (“G”), with leadership, enforcement and policy continuity forming the key elements ensuring success. 

“With ESG goals being at the forefront of corporate agendas, workplaces will continue to evolve. Next-generation offices should be designed to promote environmentally friendly practices, social responsibility and employee wellness. Implementing an ESG-friendly workplace requires a holistic framework that integrates hardware, software and corporate leadership and policies, potentially involving a shift in corporate culture. Change management is therefore vital for workplace transformation,” said Manyi Choi, Director, Head of Change Management, CBRE Hong Kong.

Landlords and Occupiers Join Hands for ESG Success

Forming a strong landlord-occupier partnership can help both parties set ESG goals and work together to monitor and improve the carbon footprint within their building and workplace. Data sharing between landlords and occupiers is key to enhance transparency and track the progress of achieving ESG goals. There are also voluntary green initiatives and programs launched by major developers to encourage occupiers to adopt sustainable practices and create environmentally responsible workplaces.

CBRE also expects green leases and other green leasing programs to become increasingly popular. 

“While green leases help improve transparency and set goals and benchmarks for landlords and occupiers to track ESG performance, Hong Kong’s typical three-year lease terms make investment in data tracking and sharing more costly than in some overseas built environments. Moreover, in view of the challenge with the city’s high-rise and multi-tenanted built environment, landlords must balance the concerns, interests, costs and benefits of all occupiers in their buildings. Non-legally binding green programmes may serve as an alternative solution to achieve similar results for both landlords and occupiers,” said Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong.

Green Buildings are Key to Achieving ESG Objectives

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. Investors and developers are increasingly constructing new green buildings or retrofitting existing properties to improve their environmental performance.

As of June 2023, 75 out of 80 of green certified Grade A office buildings are single-owned in Hong Kong, indicating a strong ESG adoption by portfolio landlords. The 34 million sq. ft. involved represents 40% of total stock.  

The largest volume of green space is in the CBD, with 65% or 9.3 million sq. ft. (net floor area) of Grade A office space in Central possessing green accreditation, followed by Hong Kong East with 7.4 million sq. ft.

Green office space is expanding in emerging submarkets as most of the city’s new office buildings, which are being constructed in these areas, are likely to be green certified. 42% of office area in Hong Kong’s decentralized office submarkets is green certified, representing 18.1 million sq. ft. of space. 

“While the availability of green buildings is growing in emerging submarkets, mature core and decentralized submarkets continue to register a higher proportion of green space. Leading portfolio landlords are taking initiatives to retrofit their buildings with green features to enhance their competitiveness. The existence of 31.5 million sq. ft. of space in single-owned non-green-certified buildings should see landlords continue to invest in green retrofits and other forms of asset enhancement in the coming years,” said Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong. 

As of June 2023, 74% of Hong Kong’s green-certified Grade A office buildings were retrofitted properties.

The latest research “ESG Beyond E: Strengthening Social and Governance Standards in Hong Kong's Workplace” examines the evolution of the workplace over the past few decades and the landscape of ESG in Hong Kong. It also highlights the keys to ESG success for developers, landlords and occupiers in Hong Kong.

Click here to access the full report.