Leveraging Sustainability to Enhance Indonesia's Property Sector

This article also appears in Investor Daily.

ESG Urgency in the Real Estate Sector in Indonesia

The Indonesian real estate sector is one of the major economic driver, contributing significantly to the national GDP and urban development. However, it is also one of the largest contributors to energy consumption and carbon emissions, making the adoption of Environmental, Social, and Governance (ESG) principles a critical focus. The urgency to integrate ESG in this sector is not just driven by environmental concerns, but also by regulatory pressures, changing consumer preferences, and the increasing threat of climate change.

Regulatory frameworks such as Indonesia’s Financial Services Authority (OJK) sustainability reporting mandate, as well as global efforts to meet the United Nations’ Sustainable Development Goals (SDGs), require real estate developers to align their operations with ESG standards. Furthermore, consumer demand is shifting towards eco-friendly properties, with tenants and buyers looking for energy-efficient, sustainably built spaces. This combination of regulatory pressure and market demand is pushing developers to incorporate ESG into their project planning and execution.

How to Implement ESG in Real Estate Projects

Implementing ESG in real estate requires a comprehensive approach, starting with the development of green buildings that use sustainable materials and energy-saving technologies. Certifications such as LEED, Greenship, Green Mark, or EDGE offer guidelines for constructing energy-efficient, environmentally responsible buildings. These certifications encourage the use of renewable energy sources like solar power, energy-efficient lighting systems, and smart building technologies that optimise energy usage and reduce emissions.

With sustainability becoming one of the key criteria for real estate leasing, momentum is building for green certification standards. In Jakarta for example, as many as 54% of Grade A Office Buildings in the Central Business District (CBD) area have obtained green certificates and the demand continues to increase and has spread to other sectors.

Including one of them is the JLL Indonesia office in Jakarta, which has become the first in the country to achieve the prestigious WELL Platinum Certification and LEED Gold Certification. This certification marks JLL Indonesia's commitment to prioritizing environment, occupant welfare and ensuring a healthier and more comfortable working environment, through the best air and water quality, healthy food, lighting and mental well-being.

Community engagement plays a vital role in the success of ESG projects. By involving local communities in the planning stages, developers can ensure that the projects serve the needs of residents while promoting social inclusion. This involvement fosters greater community buy-in and ensures that developments contribute positively to social equity. Infrastructure projects, such as public transportation systems and green public spaces, can also support environmental sustainability while enhancing the liveability of urban areas.

Sustainable infrastructure, including smart city initiatives, is key to addressing both social and environmental challenges. Smart city projects integrate technology with sustainability to create urban environments that are more efficient, environmentally friendly, and resilient. These initiatives can include public transit systems that reduce reliance on personal vehicles, electric vehicle charging stations, and energy-efficient street lighting.

Decarbonisation Strategies for Sustainable Real Estate

An integrated decarbonisation strategy is essential for real estate projects aiming to reduce carbon emissions and energy consumption. Central to this strategy is a data-driven approach, implemented through tools like Carbon Pathfinder, which are designed to help building owners and investors accurately assess their carbon footprint and model effective reduction strategies. This tool empowers decision-makers with real-time data on energy consumption and emissions, allowing them to explore various carbon reduction scenarios and evaluate their environmental and financial impacts. By providing insights into which upgrades or retrofits will yield the most significant emissions reductions and cost savings, Carbon Pathfinder enables businesses to prioritise high-impact, cost-effective actions that contribute to their decarbonisation goals while maintaining profitability.

The decarbonisation strategy revolves around three key areas: optimising energy efficiency, transitioning to clean energy sources, and electrifying operations. These elements work together to reduce operational emissions and ensure that properties comply with evolving sustainability regulations, while simultaneously delivering financial returns. For instance, upgrading MVAC systems, which typically account for a substantial portion of energy use in buildings, can lead to energy savings of between 10% and 40%, depending on the property type. These energy savings directly reduce operational costs, making the financial case for decarbonisation stronger. Such actionable insights make it easier for businesses to align their real estate portfolios with carbon reduction goals and ESG frameworks.

Benefits of a Decarbonisation Approach

A robust decarbonisation strategy offers numerous benefits. Firstly, it helps businesses meet regulatory compliance in markets where sustainability reporting and carbon reduction targets are becoming mandatory. Secondly, by cutting energy use and reducing long-term costs, this strategy enhances operational efficiency. Lastly, decarbonisation helps future-proof real estate assets by mitigating climate risks and making properties more resilient to regulatory changes and investor demands.

By utilising decarbonisation tools such as Carbon Pathfinder, building owners can not only meet their ESG targets but also create energy-efficient spaces that reduce their environmental impact. This approach aligns with broader sustainability goals, including those of Indonesia, where the government is committed to achieving the Sustainable Development Goals (SDGs) and complying with Financial Services Authority (OJK) regulations on ESG reporting. As urbanisation accelerates in Indonesia, decarbonisation strategies are crucial for businesses to adapt to regulatory pressures and minimise their carbon footprints. This, in turn, supports tenants and clients in enhancing their operational sustainability, contributing to a wider ecosystem of responsible, ESG-focused business practices. The combination of regulatory compliance, cost savings, and reduced environmental impact makes decarbonisation a vital strategy for building owners looking to thrive in Indonesia’s increasingly sustainability-conscious market.

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