Close

Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

Discover more
Close

Our philosophy is very simple. We are constantly searching for high quality businesses and when we acquire them, we will work relentlessly with them to create long-term sustainable value through innovation, ESG-led and proactive asset management.

Discover more
Close

Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

Discover more

listed infrastructure: Tokyo towers

Tokyo towers: The secrets of Japan’s net zero leaders

Investors with an ESG focus can take a lot from leading and technologically resourceful real estate companies in the world’s largest office market as they move quickly on their renewable energy targets.

Moves by two of Japan’s larger landlord-developers to accelerate green and energy efficient operation and development shows the direction forward-thinking companies in the property sector are taking.

Mitsubishi Estate and Mitsui Fudosan, both listed companies actively engaged in development and as landlords, are examples of companies globally finding new pathways to carbon emissions reduction.

Mitsui Fudosan, for instance, is looking for ways to substitute timber for high carbon emitting concrete, drawing on plantations it owns in the north of Japan. The company is building condominiums and in some instances high rise office buildings with increasing amounts of timber in order to reduce concrete use, a major source of embodied carbon in the construction process.

Both Mitsui Fudosan and Mitsubishi Estate are undertaking initiatives to source renewable energy for all of their assets within central Tokyo to address operational carbon.
 

Real estate’s carbon problem

Overall, it is estimated 40% of global emissions comes from the real estate sector, according to the Global Status Report for Building and Construction1. This contribution is made up of both embodied as well as operational carbon.

So called ‘embodied’ carbon relates to the extended lifecycle of a real estate asset. That includes emissions right from the point of raw material extraction, through to construction and redevelopment activity, as well as post the active life of a building including demolition and through to landfill.

The operational side of emissions relates to the active life of a building and predominantly comes from the sourcing of energy for buildings during their active life spans.

Companies like Mitsui Fudosan and Mitsubishi Estate, along with other companies around the world, are finding new ways to address carbon emissions, as investor capital and tenant demand continues to find its way towards cleaner and greener operators and developers.
 

Green in Japan

The Japanese government has initiated a target to achieve net zero carbon emissions by 2050. The Japanese government has also undertaken to significantly increase the amount of renewable energy sources it’s looking to utilize.

By 2030 Japan is aiming to increase its renewable energy to close to 40% (excluding nuclear), according to IHS Market data2.

At the same time the country is looking to halve the amount of carbon emissions within its economy by the end of the decade, relative to a base year of 2013, according to Climate Scorecard data3.

It’s become even more imperative for Japan to look at green sources of energy given some of the geopolitical risks that have arisen, specifically, given the country has sourced coal, oil and gas from Russia. With the Ukrainian conflict playing out, Japan has decided to phase out the use of oil and coal, making it even more important for renewable and green energy to be sourced from within Japan going forward4.
 

Investor opportunity

ESG and in particular net zero is a big issue for developers and landlords to address, with many of the implications for laggards not yet fully priced into market valuations.

Meanwhile, businesses accelerating their efforts towards net zero and broader ESG issues provide strong opportunities for investors.

Green initiatives can potentially reduce the asset redundancy risk related to developer and landlord portfolios in light of the increasing demand tenant have now for clean environmental office opportunities. It’s estimated that green certified buildings in Tokyo can command roughly a 6% “green rental premium” compared to non-certified peer offerings5.

Further, developers and landlords, like these two Japanese examples, are actually looking to build their own green energy sources, including wind, solar and even biomass facilities.

Access to clean environmental income sources means these companies – and others like them – can reduce and indeed offset emissions in their wider landlord portfolios.
 

Important Information

The information contained within this material is generic in nature and does not contain or constitute investment or investment product advice. The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this material.

This material has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and not necessarily views of FSI. Such views may change over time. This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this material without obtaining specific professional advice. The information in this material may not be reproduced in whole or in part or circulated without the prior consent of FSI. This material shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.

In Hong Kong, this material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors is a business name of First Sentier Investors (Hong Kong) Limited. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.

MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested. © First Sentier Investors Group