Growth of green building certifications in Japan

Initiatives to address ESG (Environment, Social and Governance) are increasing worldwide, and several initiatives are underway too in Japan’s real estate market.

In 2021, global participation in the ESG Benchmark for Real Estate increased to 1,520 participants, according to the latest GRESB (Global Real Estate Sustainability Benchmark) assessment. This is a 24% increase from the year before and the highest ever in total numbers. The growing interest in ESG reflects the momentum of increasing awareness and importance of ESG related risks and opportunities globally. The current number of participants in Japan is 109, up from 85 the year before. One could speculate that this increase was influenced by Japan’s Government Pension Investment Fund (GPIF) − the world’s largest pension fund – which joined GRESB as an investor member in March 2020.

One of the many important ESG initiatives attracting attention is to acquire a Green Building certification. CASBEE (Comprehensive Assessment System for Built Environment Efficiency) and DBJ (Development Bank of Japan) Green Building certification are the most popular certifications in Japan. CASBEE is a method for evaluating the environmental performance of buildings. It was established in 2001 as a joint industry-government-academia project with the support of Japan’s Ministry of Land, Infrastructure, Transport and Tourism. DBJ Green Building Certification was established by the Development Bank of Japan in 2011 as an initiative to support its customers’ environmentally and socially conscious management of their real estate.

Analysing the number of certifications by CASBEE, DBJ Green Building Certification, LEED, BREEAM, and WELL Building Standard in Japan from 2018 to 2021, we can conclude that J-REITs account for the highest percentage of green building certificates per year, followed by mostly private funds and real estate developers. Notably, the ratio of certification acquisitions by private funds increases every year, rising from 8% in 2018 to 30% in 2021. The number of corporates acquiring certifications is also growing, albeit marginally.

Figure 1:  Acquisition Ratio by Applicant Type (2018-2021)

Source: Institute for Building Environment and Energy Conservation, DBJ Green Building, Green Building Japan, BRE Group

What is driving the trend of increasing private fund participation?

We can surmise that the increase is due to changes in the financial market. In addition, the increasing number of institutional investors participating in GRESB encourages this trend and adds impetus to the growing demand for ESG and its expansion. The number of new participants in GRESB from Japan's real estate sector is constantly rising; hence ESG initiatives continue to grow. The certifications not only have the benefit of meeting stakeholder demands, but they also provide a huge advantage to other properties and lead to enhanced reputation via social responsibility commitment. These factors act as an additional incentive to acquire certifications.

In these situations, combined with the globally growing ESG-related initiatives, the effective use of building certifications will increase and gradually expand to corporates and different industries. Looking ahead, the demand for building certifications will become more and more important as an objective evaluation of real estate excellence in various aspects of the building environment.