As the effects of climate change continue to escalate, investors, regulators, and real estate users in Vietnam and around the world are increasingly focused on sustainable asset types that minimize environmental impact. The number of companies committed to reducing carbon emissions has significantly increased in recent years. The Net Zero Tracker report, an independent data provider that monitors the environmental commitments of businesses, indicates that half of the more than 2,000 publicly listed companies worldwide have pledged to achieve net zero goals.
Based on Cushman & Wakefield’s estimates, by 2050 there will be 6.6 billion square meters of commercial real estate in over 143 countries. The cost of decarbonizing all over the global real estate market is estimated to be around 18 trillion USD. Most organizations are striving to reach the target of reducing carbon emissions, using clean energy sources, and offsetting any remaining emissions.
Businesses aiming to neutralize carbon emissions by 2030 are beginning to realize that only a few years remain until the deadline. Therefore, companies must double or even triple their effort as the target date approaches, putting pressure on many developers and property owners to adopt ESG principles to attract global investment capital. This also means that investment will avoid projects that lack commitment and plan for ESG implementation.
As Vietnam increasingly attracts foreign investment capital, keywords such as “carbon neutral”, “net zero”, or ESG and sustainable are becoming popular in the real estate market. Currently, about 430 green buildings are evaluated, and certified by the system and standard of LOTUS (VGBC), EDGE (IFC-WB), LEED (US Green Building Council), and Green Mark (Singapore) with a total construction floor area of about 10 million square meters. However, the number of green buildings is still modest compared to the total amount of constructed buildings, in operation, and compared to the potential and the requirements for efficient use of energy and resources and environmental protection. To date, Vietnam has no building designed, constructed, or managed to meet the net-zero emission standard.
The growing achievement of green certifications is a positive step towards environmental sustainability and an opportunity to boost economic development and enhance the quality of life for communities. To achieve these objectives, urban planning must prioritize the development of an ecosystem encompassing buildings, landscapes, resources, infrastructure, people, and air—all in alignment with ESG standards.
While some argue that prioritizing environmental concerns could slow down development, building cities sustainably is a worthwhile trade-off. This approach also creates more opportunities for developers, real estate owners, citizens, and strategic planners to tap into their creativity and develop livable cities. Singapore is an exemplary model for effective sustainable urban planning. Since 2005, the government has set goals and a Green Mark rating system for all real estate projects. In addition, they also provide Cost Support Policies to all businesses committed to reducing carbon emissions and their negative impact on the environment. Singapore’s sustainability commission has led to a remarkable result, with more than 49% of buildings in the country meeting the government's green standard.
Many research papers show that when an organization applied ESG principles to its projects, it gained greater brand recognition, attracted customers and employees, and thus achieved a competitive advantage. Reducing waste and pollution leads to lower responsible liability risks.
Buildings that are resilient to climate and weather threats are also likely to reduce the maintenance, repair, and insurance costs in the long term.
Recently, the demand for green industrial assets in Vietnam such as land, factories, and warehouses increased rapidly, mostly driven by the manufacturing, e-commerce, 3PL, and retail sectors. These are sectors that have a significant impact on the environment, making it crucial for industrial investors to plan industrial areas to reduce carbon emissions, ensure a healthy working environment, and preserve the living for residential surroundings. Green development in industry also contributes to upgrading and rationalizing the value chain, enhancing resilience, and preventing supply chain disruption.
However, the certifications above still heavily emphasize the aspect of E – Environmental in the ESG. The primary goal of real estate is to serve people and the community, which is why investors need to pay greater attention to S – Social and G – Governance. To accomplish the two remaining aspects, real estate investors have to introduce initiatives that impact the community within the building such as green spaces, parks, or libraries. Beyond simply setting and constructing based on the standard, developers must pay attention to the long-term governance and management in building and maintaining properties, adhering to the core business ethics and operation vision. Green buildings will benefit from increased value in the long term, easier access to green credit capital, and some office projects may even have a higher leasing price of about 2-8% compared to other offices.
Regardless of where the real estate business is on its ESG journey, this is a great moment to learn all the standards related to carbon and greenhouse gas. For projects in the future, ESG goals should be established from now. Businesses need to evaluate their current situation, prepare a detailed plan, raise awareness through training, apply technologies and creative solutions, and measure and report the ESG results. For existing real estate projects, the challenge will be greater than for the new ones. Renovating old buildings will be the most cost-effective way, while also making the project more innovative and efficient. Operations should aim to meet the sustainable development standard SBTi and seek expert guidance to implement ESG in real estate.
In theory, meeting ESG standards is not difficult, as the cost difference between constructing a green building versus a traditional one is relatively small. In practice, however, the biggest challenge lies in the time required to develop an ESG-compliant design from the beginning, and the sustained efforts businesses must make to adhere to these standards throughout the project. In the long term, however, green buildings can be considered investments in the future, as developers and property operators will benefit from energy savings, resource efficiency, and reduced costs for upgrades and repairs.
ESG is not just a trend but a strategic direction for the sustainable development of real estate businesses in Vietnam. At COP26, Prime Minister Pham Minh Chinh clearly stated the goal of achieving net-zero emissions by 2050. This demonstrates that the government and businesses are working together to reshape the urban landscape by integrating technology and training the workforce to enhance the living environment.
The key priority now is raising awareness of the benefits of ESG so that all market participants can work together. Collaboration and joint investment in resources are critical to unlocking shared benefits, allowing any stakeholder to take the lead in advancing the ESG discussion at any stage of the development of Vietnam's real estate market.