How property developers can drive the ‘greening’ of China

By BNP Paribas | Sep 12, 2021

If China is to meet its bold target of carbon neutrality in the next 40 years, it will need to focus on the sustainability of its cities – and look to real estate developers like Hang Lung Properties to show the way forward.

As one of Asia’s biggest proponents of a carbon-free future, China has set a high bar for its high-growth economy.

To achieve net-zero emissions by 2060, China will need commitments from businesses not only in transportation, energy and heavy industry, but also in construction and real estate. Building materials, construction and operational emissions in real estate make up 40% of CO2 emissions globally¹, and cities account for over two-thirds of the world’s energy and more than 70% of global CO2 emissions.

As a real estate developer based in Hong Kong with a strong presence in Mainland China, Hang Lung shares the imperative to decarbonise among its environmental, social and governance (ESG) commitments. A leader in its sector, Hang Lung is focused on the social and governance elements of ESG as well as in driving environmental innovations through its design and construction activities.

More specifically, among the company’s 2030 sustainability goals and targets is steep GHG reduction of 70% per m2 compared with its 2018 baseline.

Hang Lung has also aligned its sustainability philosophy with its funding requirements. Most notably, in March 2021, it signed a sustainability-linked loan (SLL) with BNP Paribas. While proceeds from the HK$1 billion (US$129 million) three-year bilateral revolving credit facility are for general corporate use, the loan features predetermined sustainability performance targets which, if met, result in cheaper funding costs for Hang Lung.

Linking financing to ESG

Under the SLL’s terms, the targets include maintaining the developer’s rating under GRESB, a leading ESG benchmark for real estate and infrastructure companies across the world. Hang Lung must also achieve annual reductions in energy intensity across key parts of its portfolio.

To do this, the company adopts best practices for new and existing buildings. These include optimising the operating efficiency of its HVAC systems, retrofitting and replacing ageing and inefficient building facilities, using Building Information Modeling (BIM) and installing solar panels.

“We take ESG very seriously and have announced a set of sustainability goals and targets to be achieved by 2030,” says John Haffner, general manager - sustainability at Hang Lung. “Our commitment to sustainable growth combines both financial and ESG considerations. By combining the two at the heart of our strategy, we build long-term value for the company and our stakeholders, and enrich lives in the communities we serve.”

Sustainability in practice: Spring City 66, Kunming

This commercial development is testament to Hang Lung’s sustainability philosophy. After opening in late 2019, it attained the LEED for Core and Shell Development – Gold Level certification for its mall and office tower.

Several state-of-the-art sustainability features stand out:

High efficiency building service systems, including Kunming’s most energy efficient and rapid lift system, chiller plant optimisation control system and smart building management controls. Benefits include improved operational efficiency and a simultaneously reduction in electricity consumption of 12% a year compared with the ASHRAE Standard.
A hospital-grade ventilation system with UV light for sterilisation, improving indoor air quality (which was an increasing concern due to Covid-19).
Around 16% of the total site area, or 9,600 square metres, being landscaped, with the greenery creating a more pleasant, restful environment.
A greywater and rainwater recycling system with potable water recycled for irrigation – in turn reducing potable water consumption.

Spotlighting the ‘S’ in ESG

Hang Lung is also focused on the social dimension of ESG, both during construction and over a building’s lifetime.

Before development, this focus involves engaging the local community to gauge its concerns. In the Westlake 66 development in Hangzhou, for example, Hang Lung provided double-glazing for households in the neighbourhood to minimise the impact of dust and noise during construction.

“We are also piloting green leases with some tenants in our properties,” added Haffner. “These leases will frame a relationship where landlord and tenant will achieve some of their key ESG goals together.” As tenants also commit to more sustainable lifestyles, their choice of premises becomes a critical part of their decarbonisation pathway.

Pushing the boundaries

BNP Paribas provided a fully tailored SLL for Hang Lung. This came from using the bank’s extensive global experience in all facets of sustainable financing, from green bonds and loans, to transition- and sustainability-linked bonds and loans.

“Hang Lung’s SLL is aligned with APLMA Sustainability Linked Principles and is backed by Hang Lung’s ambitious decarbonisation target. We are committed to supporting companies with a transparent and credible path to decarbonisation,” said Mary Hse, managing director, investment banking, Asia Pacific at BNP Paribas.

This type of leadership role from companies like Hang Lung will help China to achieve its target of net-zero carbon emissions by 2060. Financing these real-world sustainable projects shows how partnerships between companies and the finance sector can accelerate the decarbonisation of cities – and, in turn, the development of more sustainable economies.

Sources
1 - https://www.c40.org/why_cities