January 24, 2025
In 2024, the ARES ESG Award was held for the second time, and just like last year, many applications were submitted. Some entries featured new projects launched in 2023 and 2024, indicating continued advancement of ESG initiatives by J-REITs.
In the Environment Division, strong interest in natural capital was evident in the environmental area, partly due to the impact of the final recommendations released by TNFD (Taskforce on Nature-related Financial Disclosures) in September 2023. The J-REITs ESG Initiatives Survey conducted in conjunction with the Award (see below PDF link) showed a significant increase in the number of J-REITs promoting biodiversity preservation compared to last year. In the Social Division, heightened interest in human capital was observed as sustainability disclosure became mandatory in the annual securities reports. The ESG Initiatives Survey revealed that many J-REITs are promoting and strengthening initiatives to facilitate diverse work styles and invest in human capital, such as improving employee education and training. In the Governance Division, some J-REITs are not only responding to social demands on individual ESG themes, but also promoting initiatives involving employees and various stakeholders. There were impressive efforts to strengthen the ESG-related promotion frameworks and internal penetration.
ARES ESG Award provides a valuable opportunity to share these excellent initiatives, and for other J-REITs to learn from them. We hope that the Award will continue to contribute to the advancement of ESG efforts by the whole industry.
The ARES ESG AWARD 2024 award ceremony was held at the Association for Real Estate Securitization 2025 New Year's Party held at Tokyo Kaikan on January 24, 2025. At the ceremony, the purpose of the ARES ESG Award and the award-winning initiatives were introduced, and Chairman Komoda presented certificates to each of the eight investment corporations.
“ZEB” refers to net zero energy buildings, certified by reducing energy consumption by 50% or more from the specified standard. Japan Real Estate Investment Corporation aims to acquire ZEB certification for five to ten existing office buildings by 2030, and has already acquired the certification for four buildings. Methods used to meet the ZEB criteria include conversion to LED lighting and optimal downsizing of air-conditioning capacity to match the current environment. Properties converted to ZEB are examined to confirm efficient operation and that the air-conditioning has sufficient capacity that does not compromise the comfort of the tenants.
Achieving ZEB with existing buildings is deemed more difficult than with new buildings. As reducing the environmental load of existing stocks is a challenge for the real estate industry, this was an industry-leading and effective initiative toward realizing a decarbonized society.
Buildings account for about 30% of energy consumption in Japan. To achieve carbon neutrality by 2050, new buildings must have better environmental performance, and existing stock must be renovated. However, the latter is not easy to achieve. This innovative initiative creates a new flow of capital for ZEB conversion of existing stock with J-REIT involvement and is expected to have a significant impact. There are also high expectations for the accumulation of know-how in the J-REIT industry on energy savings by downsizing air-conditioning equipment without compromising tenant comfort.
Activia Properties Inc. is implementing an initiative to improve air-conditioning efficiency at office buildings in its portfolio using sweet potato leaves for shade and photosynthesis effects. Sacks with sweet potato seedlings are placed between outdoor air-conditioning units to prevent taking in heat from exhaust air, provide shade, and leverage transpiration to lower the temperature around the outdoor units.
Sweet potato leaves remain cool even as the atmosphere and exterior wall temperature rise, successfully counteracting the heat island effect. An automated watering and fertilizing system was developed to make cultivation easy. The greening system was patented in 2019, with expectations for around a 10% reduction in energy consumption during the peak in summer daytime. Sweet potato harvesting also creates an opportunity for communication with tenants.
This unique initiative involves improving air conditioning efficiency using sweet potato seedlings, presenting a single solution to various environmental issues, including global warming, food shortages, and biodiversity. The initiative was highly commended for its versatility as it does not require large-scale renovation work and allows existing buildings to remain operational as the environmental load is reduced. It should serve as a highly useful reference for many J-REITs committed to environmental measures with limited budgets. The initiative has many additional merits, such as the disclosure of quantified energy-saving data and the creation of opportunities for interaction with tenants.
Hulic REIT Management Co., Ltd., the asset management company of Hulic Reit, Inc., introduced an internal program in FY2021 to present awards to employees who implemented notable ESG-related initiatives and share them across the company. Eight employees have received the awards in the past three years. The introduction of the awards system, in addition to the annual performance assessments, is expected to enhance employees’ motivation. Internally sharing worthy initiatives also promotes active engagement in ESG-related operations, volunteering activities, and obtaining qualifications.
Incorporating sustainability into various initiatives for employee self-development is a brilliant approach. The awareness of employees in the asset management company who implement these initiatives will make a significant difference when carrying out ESG-related initiatives and delivering the benefits through property management to stakeholders, including investors. This sense of ownership cannot be cultivated merely with the knowledge acquired through training, etc. Integration with workplace satisfaction and a sense of achievement is essential. This initiative is groundbreaking in its effort to squarely address the issue and foster an organizational climate for promoting sustainability by incorporating an employee recognition program alongside the annual performance assessment.
Healthcare Asset Management Co., Ltd., the asset management company for Healthcare & Medical Investment Corporation, is enhancing employee training topics and content to improve ESG-related knowledge and cultivate an ESG mindset to promote ESG. More specifically, each department plans and holds study groups with outside experts and external training sessions on prominent ESG themes such as conflict of interest management, harassment prevention, DEI, human rights, TCFD, the Act on the Rational Use of Energy in Buildings, an aging society, and the nursing care system. Furthermore, as a healthcare-focused REIT, internal study groups on medical and long-term care systems are held by specialized or relevant departments. Proactive planning of training sessions by each department under the initiative fosters an ESG mindset while also helping to raise the level of specialized operations.
As all properties owned by Healthcare & Medical Investment are healthcare facilities responsible for lives, managing these assets directly contributes to solving social issues. At the same time, employees’ ESG-related knowledge and mindset serve as a critical foundation. Training themes are selected based on this understanding, and promoting employee education on various ESG elements—including DEI, human rights, and environmental issues—in addition to compliance topics, constitutes an investment in human capital. The systematic and organized implementation of this initiative serves as an outstanding example of sustainability governance.
Daiwa House REIT Investment Corporation conducts analysis and disclosure based on the LEAP approach aligned with TNFD Recommendations. The nature-related dependencies and impacts of the top 100 properties in the portfolio, based on acquisition price (80.1% coverage), are analyzed, and responses are prepared based on the assessment of identified risks and opportunities. Quantitative indicators and targets, such as obtaining biodiversity-related certification, are established, and progress is disclosed in the Sustainability Report and the website. It is the first J-REIT to register as a TNFD Adopter, and its nature-related information disclosure aligns with the TNFD Recommendations. Daiwa House REIT Investment Corporation states it will continue to disclose nature-related information proactively.
As the Sixth Basic Environment Plan emphasizes that natural capital forms the foundation of all activities, there is a heightened need to reflect natural capital-related risks and opportunities in economic activities. This initiative involves proactive TNFD disclosures, anticipating social demands. In addition to the extremely early TNFD Adopter registration, a detailed analysis is disclosed, explaining the process of analysis of Daiwa House REIT Investment Corporation’s nature-related dependencies and impacts in line with the LEAP approach and the assessment of identified risks and opportunities. It is recognized as a pioneering initiative that can serve as a reference for other investment corporations aiming to implement TNFD disclosures.
Mitsui Fudosan Logistics Park Inc. has established an electricity wheeling scheme by adding solar panels to MFLP Atsugi II and allocating surplus electricity to two other properties in the portfolio. The installation of additional solar panels at MFLP Atsugi II resulted in obtaining ZEB certification. Installation of solar panels on operating properties is more difficult compared to installation during initial development, as it requires coordination with tenants. However, it can improve green performance for individual property and expand green energy use for the whole portfolio with the wheeling scheme to reduce GHG emissions.
Solar panel installation on a single investment property is common, but this innovative initiative promotes decarbonization across the whole portfolio by introducing a wheeling scheme that transmits surplus electricity to other properties in the portfolio. In addition to enhancing the green performance of the individual facility by increasing its generation capacity, it leverages existing stock with a VPP (virtual power plant) function for a novel greening approach. We encourage other investment corporations to reference the initiative to create a new cycle of added value.
Nomura Real Estate Master Fund’s asset management company, Nomura Real Estate Asset Management, engaged all employees in repeated discussions to foster a sense of personal relevance to sustainability and developed an internally originating approach to “why we commit to sustainability.” Based on this, a new sustainability policy was formulated, positioning employees as the primary stakeholders to ensure that all employees understand and internalize sustainability initiatives, leading to concrete actions.
This is a highly innovative and ambitious initiative. It is a truly exemplary approach by an asset management company, fostering a consensus on sustainability initiatives through discussions involving all officers and employees. Furthermore, based on the new sustainability policy, the investment corporation has come to identify materiality and established KPIs against the broad scope of “solutions of social issues through real estate investment” that the company had recognized. This approach captures the essence of sustainable management, and we have high expectations for the future development of the initiatives.
ORIX JREIT’s asset management company, ORIX Asset Management Corporation, held a stakeholder meeting on ESG-related initiatives involving the management and guest experts, and the transcript was disclosed in the Sustainability Report. It includes a feature article, “Social Impact of OJR,” publishing a detailed account of the discussions held at the stakeholder meeting involving multiple experts, deepening understanding of the perspectives of management and outside experts on OJR’s initiatives. This approach represents a pioneering example of sustainability governance disclosure.
This is an excellent example of demonstrating a sincere commitment to sustainability governance. Readers can see the management articulating their perspectives and strategy on sustainability issues in their own words. This initiative reflects the management’s proactive stance in continuously updating their approach to sustainability issues without falling into self-affirming complacency. We hope to see various future dialogues lead to more innovative initiatives driving the J-REIT industry. Other investment corporations can also reference this example of how the meeting contents are shared internally to create a unified vision.
An advertisement featuring the logos of J-REITs entered in the "ARES ESG AWARD 2024" was published in the May 2025 issue of "Nikkei ESG."
"ARES ESG AWARD 2024" advertisement (published in the May 2025 issue of "Nikkei ESG")
Comment by the judges
ESG investment is becoming mainstream and is steadily taking root in the J-REIT industry. The results of “J-REITs ESG Initiative Survey 2024” (see below PDF link) suggest that J-REITs are taking quick actions to respond to increasingly diverse demands for adopting ESG-related programs and disclosures. This also suggests that the formulation of environmental policy and the use of renewable energy have become accepted norms, and efforts to address new themes such as natural capital and various social aspects have evolved further. The ARES ESG Award is an occasion where all such efforts come together in the J-REIT industry's distinctive atmosphere, characterized by mutual improvement through information exchange. Once again, we received many applications featuring compelling initiatives. Bold initiatives included the improvement of existing properties—previously seen as a challenge—as well as reforms to enhance employee awareness. The quality and depth of these initiatives were truly remarkable.
As support for impact investment gains momentum, we would like to see further efforts to enhance the value of real estate through initiatives that leverage the unique characteristics of each portfolio and visualization of the impacts created by such initiatives. We hope that the ARES ESG Award will continue to contribute to the advancement of the industry.