Currently, China's real estate market has shifted from rapid growth to steady development, with new supply decreasing and market demand slowing down. Property service enterprises have entered the era of stock competition, mainly competing around the competition for and management of existing property resources, and the property industry is in urgent need of finding new differentiated competitive advantages.
Under this industry development trend, the introduction of ESG concept will become the new core competitiveness of property service enterprises.
New Opportunities in the Era of Property Inventory Competition
Against the backdrop of a shrinking incremental office market, the competition in China's office property market has become increasingly fierce. Many listed property companies have turned their attention to the office property market in an attempt to find new growth points.
The sheer size of the office property market has undoubtedly provided these companies with a wide range of space, with its overall size reaching hundreds of billions of dollars and expected to continue to grow in the coming years. It is predicted that by 2025, the revenue scale of office properties is expected to reach $141.9 billion, and the area under management will also increase significantly to 1.67 billion square meters.
In the face of such a market landscape, multiple forces such as domestic and foreign property companies, joint ventures and foreign-funded facility management companies have joined the competition, making the market increasingly competitive.
In such a competitive environment, it is not easy to successfully capitalize on market opportunities. Due to the high market entry threshold and operational difficulties, not all companies can easily cope with it. Therefore, having unique differentiation will be the key for companies to stand out and stand out from the competition.
Jones Lang LaSalle pointed out in 2021 that green properties have significant advantages in terms of quality due to their favorable location conditions, and well-developed property facilities and management, thus facilitating the realization of premium prices.
How to Properly Understand ESG for Property Services
In today's increasingly competitive property stock, we recognize that the introduction of ESG standards is an important direction and opportunity to drive sustainable development in the industry.
ESG for property services refers to the inclusion of environmental, social and economic impact considerations in property maintenance and operations, aiming to pursue a balance between economic value, environmental and social resource protection.
In the process of transforming the property services industry from incremental to stock market competition, property services ESG is an important means of exploring diversified and differentiated competitive advantages, which can identify and gain insights into the needs and opportunities of stakeholders across the entire value chain through the framework of a more diversified range of value dimensions, and ultimately help property projects achieve a better interactive relationship with the relevant parties.
We have considered the environmental, social and economic dimensions in an integrated manner and reflected these considerations in the perceived value of our property services in the following three value dimensions: low carbon and climate change, environment and resources, and people and community.
Low Carbon and Climate Change
· Improving weather disaster response
· Adaptation to environmental regulation and policy
· Enhancing energy efficiency
· Optimize waste management
Environment and resources
· Enhancing water use efficiency
· Optimize indoor and outdoor environments
· Enhancing ecological and environmental friendliness
People and Community
· Safeguard personal safety
· Promoting humanistic care
New Business: Taking Climate Change Risks into Account
Constructing an infrastructure ESG evaluation system to help normalize the development of China's public REITs. Infrastructure investment and operation is highly compatible with ESG management concepts, both of which attach great importance to long-term factors. The operation cycle of infrastructure projects is usually decades long, and they are more affected by long-term factors such as climate change and climatic hazards, so the ESG concepts can play a positive role in terms of value.
New results: financial benefits and higher social value for businesses
By making properties more attractive to investors and tenants, green buildings achieve 23% higher occupancy rates than conventional buildings, increase rental income by 8%, and realize premiums of up to 31% at the point of sale.
Core Competitiveness of Property Service ESG in the Era of Inventory Competition
In the era of stock competition, the core competitiveness of property services ESG (environmental, social and corporate governance) is mainly reflected in the following aspects.
I. Environment (E) Level
1. Energy efficiency and resource management
Energy efficiency improvement:Reduce energy consumption through intelligent management of property facilities, such as adopting intelligent lighting systems, optimizing elevator operation modes, and installing energy monitoring equipment.
Water resource management: Implement water conservation measures, including installing water-saving appliances, optimizing the irrigation system, and enhancing leakage detection and repair.
Adopt drip irrigation or sprinkler irrigation technology in greening irrigation, automatically adjust the irrigation water volume according to soil moisture and weather conditions, and improve the efficiency of water resource utilization. Conduct regular inspections of the water supply pipe network in the property area to detect and repair leaks in time to avoid the waste of water resources.
Waste management: Establish a perfect waste classification and recycling system to improve the recycling rate of waste. Cooperate with professional recycling organizations to collect and treat recyclables in a classified manner and reduce the amount of landfill. At the same time, encourage owners to participate in garbage classification and raise their awareness of environmental protection through publicity and education.
2. Green space and ecological protection
Greening and Landscape Maintenance: Create a green and ecological property environment, increase the greening area and improve the vegetation coverage. Reasonable planning and designing of greening landscape, choosing plant varieties suitable for local climate and soil conditions, improving the survival rate of plants and ecological benefits.
Biodiversity protection: Protect and promote biodiversity within the property area and provide habitats for wildlife. Avoid the use of environmentally harmful pesticides and chemical fertilizers to reduce damage to the ecosystem.
II. Social (S) Level
1. Community Participation and Relationship Maintenance
Community construction and activity organization: Actively participate in community construction and organize colorful community activities to enhance cohesion and sense of belonging among owners. Establish owners' committees and other community organizations to strengthen communication and cooperation between owners and property companies to solve community problems together.
Community safety and emergency management: Ensure the safety and stability of the community and establish a sound safety management system and emergency plan. Strengthen the patrol and monitoring of the property area to protect the personal and property safety of the owners. Regularly organize fire drills, earthquake drills and other emergency drills to improve the emergency response ability of owners and property staff.
2. Employee development and protection of rights and interests
Employee training and career development: We emphasize employee training and development, and provide employees with abundant training opportunities and career promotion channels. Carry out job skills training, management training, professionalism training, etc. to improve the professional skills and comprehensive quality of employees.
Employee welfare and rights and interests protection: Provide good employee welfare and protect the legitimate rights and interests of employees. Pay social insurance for employees, provide paid annual leave, holiday benefits and so on. Establish a sound mechanism to protect the rights and interests of employees, such as labor dispute mediation mechanism and employee complaint handling mechanism.
III. Corporate Governance (G) Level
1. Transparent management and compliant operation
Information Disclosure and Transparency: Enhance information disclosure, improve the transparency of the company, and timely publicize the company's operating status, financial status, ESG performance and other information to owners, investors and the public, and accept the supervision of all parties.
Compliance management and risk control: establish a sound compliance management system to ensure that the company's operational activities comply with laws, regulations and industry norms. Strengthen internal audit and supervision to prevent and control operational risks.
2. Strategic Planning and Sustainable Development
Integration of ESG strategy: Integrate ESG concepts into the company's strategic planning and operational decisions, and formulate clear ESG objectives and action plans. Formulate energy-saving and emission reduction targets, community service enhancement plans, employee development plans, etc., and incorporate these targets and plans into the company's annual work plan and performance appraisal system.
Long-term value creation: Focus on the long-term development of the company and pursue the maximization of comprehensive economic, social and environmental values. By continuously improving the quality of property services and strengthening ESG management, the company will improve its core competitiveness and sustainable development capability, and create long-term value for shareholders, owners, employees and society.
The Future Trend of ESG Integration into Property Service Enterprises
Incorporating ESG concepts into corporate operations can help property service companies form a unique brand image and market positioning, and build differentiated competitive advantages that are difficult to replicate. Through efforts in green, environmental protection, social responsibility and other dimensions, they can attract more consumers and investors who emphasize on sustainable development.
Property service companies with excellent ESG performance can not only gain the favor of the capital market and reduce financing costs, but also enhance the social recognition and reputation of the brand. This helps companies to occupy a favorable position in the fierce market competition and achieve long-term stable development.
Through the implementation of ESG strategy, property service enterprises can promote the efficient use of resources and recycling, energy saving and environmental protection. This not only helps the enterprise itself to realize sustainable development, but also contributes to the sustainable development of the whole society.
In the face of the profound changes in the real estate market and the inventory competition in the property service industry, property service enterprises should actively embrace the ESG concept and integrate it into all aspects of their operations. By building green properties, promoting community harmony, strengthening corporate governance and other measures, they can continuously improve their competitiveness and sustainable development capability.
At the same time, the government, industry associations and all walks of life should also strengthen the publicity and promotion of ESG concepts to create a favorable external environment and policy support for the ESG practices of property service companies. In this way, we can jointly promote the transformation, upgrading and high-quality development of the property service industry in the new era.
Author: He Xuan
CFA teaching experience for 10 years, ESG expert of China Association for the Promotion of Science and Technology Finance, well-known lecturer of CFA, ESG and FRM. Accumulated teaching over 6000 hours, accumulated training 7000+ students, accumulated online teaching time 1500+ hours. Serving corporate clients: HSBC, Bank of China (national head office), Industrial and Commercial Bank of China (national head office), Construction Bank (national head office), Xi'an International Studies University, Agricultural Bank of China (Zhejiang branch), Postal Savings Bank, Pacific Insurance Group, Taikang Life, Industrial Securities, Bank of Nanjing and so on.
