Article

The scope of green leases is expanding beyond the environment

Sustainability leaders are planning to incorporate social impact clauses in green leases

October 13, 2022

Green leases have historically focused on environmental clauses, but now the conversation is moving to clauses that make social impact.

According to JLL’s recent research of sustainability professionals in Asia Pacific, social clauses that could become part of future green leases include mandates to pursue inclusive design, support economic development, or engage local communities.

The focus is on rounding out environmental, social and governance (ESG) efforts that have risen up the agenda of companies and investors in recent years.

“The impact that the built environment can make on reducing carbon emissions is well-documented, but there is more value that real estate can create to achieve holistic ESG objectives,” says Kamya Miglani, Head of ESG Research, Asia Pacific, JLL.

“Beyond environmental sustainability, leasing decisions need to deliver positive social impact and good governance,” says Miglani.

Currently, clauses on sharing of data on energy, water and waste remain the most preferred by sustainability managers, JLL data shows.

But more companies in Asia Pacific are planning to include social responsibility clauses when they renew their lease, according to JLL’s green leases report. Such clauses may include commitments to diversity and inclusion (D&I), health and wellbeing, and community building.

For instance, a green lease that incorporates social impact actions and good governance practices — also known as a responsible lease — may require the building landlord and tenant to collaborate with social enterprises and charities on innovation projects as a form of community engagement.

Push for green leases

In Asia Pacific, 42% have already signed green leases and another 43% plan to do so by 2025, JLL data shows.

Leading the charge are countries with supportive government policies requiring buildings to become energy-efficient in the race to net zero, according to Miglani. In Singapore, all new buildings must adhere to higher sustainability standards and be green-certified under the Building and Construction Authority’s (BCA) green building rating system.

In Australia, a newly passed climate change bill is also expected to accelerate the adoption of green leases as part of carbon reduction efforts.

Besides regulatory pressure, the push for green leases is also coming from landlords. “Landlords who wish to avoid a brown discount on their assets will have to retrofit not only to reduce their buildings’ energy needs, but also to make them relevant and future-fit in the long run,” says Miglani.

However, collaboration on green leases has been hamstrung by higher costs, which was flagged as a top barrier to adoption in the green leases report.

“Landlords are sometimes unwilling to cover upfront costs if occupiers alone benefit from the improvements, or if occupiers are not able to modify the leased space due to the constraints,” says Miglani.

From environment to social and governance

Having a framework for collaboration in the form of a green lease drives value creation and helps both parties align on mutual sustainability goals, according to Miglani.

Soon, this will extend beyond environmental sustainability as competition for talent and changes in how and where people want to live and work amplify the need to create healthy spaces for inhabitants and inclusive places for thriving communities.

“This essentially broadens the scope of green leases to responsible leases, which better reflect wider ESG objectives and unlock new benefits for both occupiers and landlords,” says Miglani.