ESR-REIT Annual Report 2024 145 our ERM framework and allows us to proactively address evolving regulatory requirements related to sustainability and climate change. We plan to enhance operational efficiency by: • Greening our buildings while optimising energy and water consumption • Shifting towards solar power to lessen our dependence on brown energy • Aligning with ESR Group’s Net Zero Carbon Strategy and Decarbonisation Roadmap as part of our commitment to achieving Net Zero Carbon In FY2024, we are developing similar roadmaps for our Australia and Japan portfolio that considers the local operational context and available resources. These roadmaps serve to guide our teams with a targeted approach to decarbonisation. Quantification of climate risks To quantify transition risks from a 1.5°C scenario (worst case), we used the Carbon Risk Real Estate Monitor (“CRREM”) tool. The CRREM tool is a publicly available Excel-based tool funded by Horizon 2020 Energy Efficiency programme of the European Commission and used by asset managers worldwide. It allows investors and property owners to assess the exposure of their assets to stranding risks and cost of excess emissions based on energy and emission data. We quantified the portfolio’s Carbon Value at Risk (“CVaR”)2, cumulated cost of excess emissions as a percentage of portfolio gross asset value (“GAV”) and cost of retrofits. To quantify physical risks stemming from a 4°C scenario (worst case), we used Climate X, a platform that models physical impact on buildings through a digital twin of assets to understand how the changing weather events under each warming scenario might impact buildings. For financial impacts not accounted by the platform, we referenced proxies from the market. These methods provided estimates of the expected financial impact on our portfolio that include damages from physical hazards, loss in revenue from non-operating days and increased operational costs. The findings are used by the relevant departments in the SWC in risk management and business planning. MATERIAL TOPIC: CLIMATE CHANGE ADAPTATION Target Time Horizon 2024 Performance New Achieve Net Zero by 2050 Long Term On track Impact of Climate Change to Stakeholders Climate change presents substantial physical and transitional risks that can impact REIT operations. Operating in an asset-heavy sector, our financial performance is prone to impacts from physical climate events such as floods and wildfires, accompanied by heightened climate reporting and EUI regulatory requirements facing the buildings sector. These risks could affect the day-to-day operations and financial performance of our business. While climate change poses risks, it also offers opportunities for REITs to create value through investments in sustainable and resilient properties. These mitigatory measures aim to protect the longevity of assets and protect shareholder returns. Regulations and Frameworks on Climate Change Relevant to ESR-REIT As a REIT regulated by the MAS, we are required to comply with the MAS Guidelines on ENRM for Asset Managers by FY2023. ESR-REIT is also listed on the Mainboard of SGXST, which mandates climate-related financial disclosures to the IFRS standards by FY2025. In FY2023, we have integrated our ENRM disclosures with our TCFD disclosures. This year, we are enhancing our climate-related disclosures with requirements from IFRS S2, which requires financial information on climaterelated risks and opportunities, by assessing anticipated financial effects on our portfolio from climate risks. How We Manage Climate Change Between FY2021 to FY2023, we engaged consultants to identify the various climate risks affecting our portfolio in the short- (to FY2025), medium- (to FY2030) and long-term (to FY2050). We then integrated mitigatory measures into our Enterprise Risk Management (“ERM”) framework. To better contextualise and inform the impacts of climate risk on our financial performance, we have started quantifying our transition and physical risks using relevant models and proxies to inform our financial planning. Decarbonisation roadmaps In FY2023, we created a Decarbonisation Roadmap for ESR-REIT’s properties in Singapore, outlining our strategy to decarbonise our operations aligned to the Singapore Green Buildings Masterplan 2030. This roadmap is essential to our approach for mitigating risks identified in 2 The CVaR is a metric that measures climate-related financial impacts to the portfolio value. The analysis used the current and projected prices of Renewable Energy Certificates as a proxy to the cost of excess emissions in the scenarios which the portfolio is operating above the 1.5°C trajectory.
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