Our Journey Began in 2021. I am passionate about ESG & decarbonization. I believe that Climate Change is a real threat to humanity; and, I have been frustrated for almost 15 years because we have too much talk and very little impactful action. In 2021, I began serving on the Board of Directors of Koramco AMC, a property investment company in Korea with about US$22 billion AUMs. I feel very fortunate that Koramco has agreed to embrace the importance of ESG & sustainability into their day-to-day operations. We still have so much to do but we started to take our first important steps. By sharing with you this story of Koramco’s journey, I am hoping that it could help others adopt similar approaches in taking the first few steps onto their own journeys toward carbon neutrality. After two years, we summarized our journey into this document, “Koramco ESG & Sustainability Highlights 2024” to demonstrate that the first steps were made less difficult by linking ESG & sustainability to enhanced financial performance.
1. Business Case for Sustainability is the Key Driver! Most people assume that sustainability initiatives will entail higher costs and will drag down investment returns. So, what we did was to focus on those activities that can increase profitability. During 2022-23, we focused on reducing energy consumption on a sub-portfolio of 54 buildings with various typologies and total GFA of 3.1 million square meters.
2. Estimate Impact of Enhanced Financial Performance. To get “buy-in” from top management, we needed to quantify how much “financial performance” could be enhanced from energy reduction measures. The calculation was shown using excel spreadsheets, a tool that everyone felt comfortable with, is opposed to presenting dashboards. The chart below shows a partial view of the excel spreadsheet that we used to estimate a few scenarios of kWh reductions:
• Reducing 5% energy => increased valuation by US$41 million.
• Reducing 10% energy => increased valuation by US$82 million.
• Reducing 15% energy => increased valuation by US$123 million.
Please note:
• We collected monthly energy consumption in both kWh and money for 2021, 2022 and 2023. We continue to update monthly in 2024.
• Across a portfolio of 54 buildings in excel spreadsheet because people understand how to use excel for analysis. Fancy dashboards were not desired at this initial stage.
• Allows analysis to arrive at EUI trends measured in kWh/m2a metric alongside the energy bills.
• We spent $35 million on energy bills (electricity & gas). I think that, for larger portfolios, annual energy bills can easily be hundreds of millions of dollars for much greater financial gains.
• Reducing energy consumption or utility expenses for electricity and gas will increase profits or net operating income (NOI)
• Dividing the increase in NOI with an appropriate market cap rate will calculate the increased real estate valuation of the asset.
• Our initial focus on implementing reduction strategies that do not require up front CAPEX; operational changes, shutting off lights, adjusting temperature set points, etc.
3. 2023 Energy Reduction & Business Case Results: In terms of our energy reduction plans for 2023, we were only able to achieve a 3% reduction. We had hoped for a bigger reduction but we focused on reduction strategies that did not entail up front CAPEX. Despite the smaller than expected kWh reduction, we were happy to have achieved an increase asset valuation of US$30 million. This positive milestone has provided confidence to target larger reductions for 2024.
4. ESG Global Reporting Requirements as another Key Driver. Korea does not have mandatory reporting requirements so, frankly speaking, most Korean property companies are not active in ESG and sustainability. However, Koramco realized that our global clients based in Europe and other parts of the world have sustainability metrics they need to report. If we want to attract their investments into our funds, we must make sure that the assets we underwrite are accretive to their ESG goals and requirements. This has become an important driver for Koramco to adopt ESG global best practices. In 2022, Koramco received GRESB assessments and improved their Asia Sector Leader award to Global Sector Leader in addition to being awarded 5 Stars on several of their office projects.
5. ULI Greenprint. To further enhance our knowledge on global best practices, Koramco joined this worldwide membership alliance of leading real estate owners and developers committed to improving the environmental performance of the global real estate industry. Greenprint members, with 16,550+ properties worth US$2 trilion in AUMs, strive to reduce greenhouse gas emissions meaningfully by 2030, and achieving net zero carbon operations by 2050. A few recommendations for PropTech companies. From our experience at Koramco, here a few take aways to brainstorm ideas to help accelerate adoption of innovation solutions:
1. Link your solution to the business case. Most property companies like to see case studies with actual data so that they can validate the reasonableness of the financial performance projections in increased NOI and asset valuations. If you have case studies, try to show the calculations; showing fancy dashboards that do not show the calculations are not very convincing.
2. Work closely with an “ambassador” internal to the client organization to confirm whether they are convinced on “why” they need to adopt ESG. Do they have important drivers that make them want ESG adoption? Without a clear understanding of why, it is difficult for clients to implement a long term strategy of impactful actions.
Chungha Cha is passionate about ESG, Sustainability & Net Zero Cities. With 20+ years experience in finance and 15 years in net zero & sustainability, Cha’s main area of focus is linking sustainability in real estate to the business case. He serves as an Urban Land Institute Global Governing Trustee (2024-2027) and focuses much of his efforts on helping to advance one of ULI’s Global Mission Priorities of “Net Zero & Decarbonisation” in Asia.
