Despite such instability, we are emphatically continuing with our initiatives to enhance sustainability (preserving the natural environment and maintaining social systems). If anything, seeing a multitude of risks emerge throughout the world has strongly reaffirmed to us the importance of providing for issues from a long-term perspective.

Reading the newspaper recently, a headline proclaiming “the end of the ESG boom” leapt out at me. Surprised, I read on and found that the article actually suggested that incorporating ESG performance into corporate evaluation would become a matter of course, rather than a passing trend in capital markets. I share that view. While those who are indifferent to ideas that focus on ESG may now be in the minority, the mindset that “ESG implementation usually entails a negative financial impact” remains deeply rooted. For sure, proactive efforts to enhance sustainability might involve short-term costs. However, if such costs can be expected to mitigate future risks and increase opportunities, we should view them as investments, rather than costs.

Looking at the matter from a different angle, the core mission of the Japan Real Estate Investment Corporation (JRE) is to “provide high-quality office space while offering long-term investment opportunities and maximizing unitholder value”. A long-term perspective is clearly at the forefront of this mission. The basic concept of this core mission is highly compatible with enhancing sustainability in terms of preparing for the future.

JRE’s Cutting-Edge Initiatives for Promoting ESG

In 2018, we established our ESG Office (currently, Sustainability Management Department), a pioneering move in the industry as a J-REIT asset management company. In the same year, we became a signatory to the United Nations Principles for Responsible Investment (the PRI) before becoming the first J-REIT to disclose information following the Task Force on Climate-related Financial Disclosures (TCFD*¹) recommendations in 2019.

In 2020, we unveiled environmental key performance indicators (KPIs), including CO2 emissions reduction targets, to further promote our climate change initiative. We upwardly revised these targets in 2022, and our new targets are aiming for an 80% reduction in CO2 emissions by fiscal 2030, over the fiscal 2019 levels, and net-zero carbon emissions by fiscal 2050. The new targets have also been approved by the Science Based Targets initiative (SBTi*²). Meanwhile, in TCFD scenario analysis, we further developed the qualitative financial impact analysis disclosed in 2021 to disclose the results of a quantitative analysis conducted in 2023.

JRE is committed to sourcing 100% of the electricity used at its buildings from renewable sources. In line with this aim, we have joined RE100, a global initiative promoting renewable electricity. In 2023, JRE also acquired its third and fourth certifications under the ZEB program*³, which seeks to achieve net-zero energy consumption at buildings.

We are also actively incorporating ESG initiatives into financing. This approach has led us to borrow funds on eight occasions using sustainability-linked loans (SLLs). The SLLs are designed in such a way that, based on our success in achieving our ambitious ESG targets, a reduction in the interest rate will be offered.

These and other measures have seen JRE lauded by stakeholders as the front-running J-REIT in promoting ESG initiatives.

Provision of “Offices That Are Tenants’ First Choice” to Meet Global ESG Standards

Before taking up my current post in April 2022, I was involved in the management of global real estate investment management companies. During that time, I worked on surveys regarding ESG measures at group companies in North America, Europe, and Asia. While investors decide on investment targets after analyzing economic and financial conditions in various regions, the surveys reminded me that ESG measures have become important criteria in recent years. Discussions in this field are furthest ahead of the curve in Europe, with Asia—including Japan—unfortunately lagging several years behind. With their exacting ESG standards, European investors will not invest in real estate with inadequate environmental measures, no matter how attractive it might be as an investment target. These investors have also established strict standards regarding the governance systems of asset management companies. With foreign investors accounting for approximately 30% of its unitholders, the views of such investors are of the utmost importance to JRE.

ESG standards extend beyond the realm of investment. In the United Kingdom, for example, buildings for sale or lease must have an Energy Performance Certificate. In principle, new contracts cannot be concluded on buildings with an energy efficiency rating on this certificate that is below a certain level. In time, such regulatory trends are likely to spread throughout the world. Even without such regulations, we have been seeing moves not only by European but also Japanese companies to select the buildings they occupy based on ESG standards. Selecting buildings that take into consideration environmental performance and the employees’ health and well-being has become an increasingly crucial element of business strategy. I feel there is a growing need to not only obtain various certifications but also clearly communicate that our buildings are outstanding from an ESG perspective.

Pursuing the Best for All Our Fellow Stakeholders and Maximizing Unitholder Value

In closing, I would like to emphasize that our aim is not merely to meet the expectations of society. Our goal is to pursue the best for all our fellow stakeholders—including tenants of buildings, those involved in property management, neighboring communities, and colleagues who lead the management of our assets—by enhancing sustainability in relation to our business activities, which will, in turn, maximize unitholder value.

This ESG website provides detailed information on JRE’s initiatives, which are based on such ideas. I hope it will help all our fellow stakeholders deepen their understanding of our endeavors.

• The TCFD was established by the Financial Stability Board, an international institution.
• The SBTi is an international initiative promoting the establishment of targets based on scientific grounds.
• The ZEB Certification program defines the energy performance of buildings based on a third-party certification program led by the Ministry of Land, Infrastructure, Transport and Tourism, which focuses on energy savings.