Climate Change

Higher frequency and intensity of heat extremes, droughts but heavier precipitation, reductions in snow cover and permafrost, to name a few, are clear examples of the increasingly precarious situation of global warming, which urgently requires more immediate attention from operating entities across industries. The warming of our atmosphere is principally caused by the release of greenhouse gases, and the most prevalent of these gases being carbon dioxide.

With the release of “Hong Kong's Climate Action Plan 2050” and the corresponding target to achieve carbon neutrality by 2050, there are directions for identifying and managing climate risks for our city. As manager of Sunlight REIT, we have been engaging our stakeholders to rally support for environmental protection through the entire business chain, and will strive to strengthen our preparedness and put together mitigation measures ahead of time to cope with upcoming climate risks.

In FY2020/21, the Board of Directors of the manager of Sunlight REIT (the “Board”) approved and adopted a climate change policy for Sunlight REIT, which outlines our commitment to managing relevant risks across our operations and to developing mitigation, adaptation and resilience strategies to address such risks. Our risk management framework, which assesses ESG risks regularly, has included climate-related risks under the corporate risk register, allowing us to keep track of any potential climate-related issues which would cause financial and operational disruptions.

During the Year, we continued to monitor and manage climate issues relevant to our business. The identified physical and transition risks and our responses to address their likely impacts on our business operations are illustrated as follows:

Physical risks

Acute risk:

• The increased intensity of extreme weather conditions may cause severe damage to our building envelopes (such as broken windows, damaged glass doors and water leakage), resulting in disruptions to business operations and losses of revenue.

Chronic risk:

• Higher level of energy consumption at our properties to maintain room temperature at a comfortable level under heatwaves, and the change of rainfall patterns which may lead to flooding. Extreme weather events will likely increase operating and maintenance costs.

Transition risk

Policy risk:

• More stringent policy requirements from the Government and official institutions regarding climate change, emission regulations and reporting requirements, which may potentially increase operating costs.

Our Responses:

• Conduct asset enhancement initiatives to prevent and alleviate the impacts arising from extreme weather events;
• Conduct regular reviews and analyses of local and international reporting requirements; and
• Improve the portfolio’s environmental performances with various building enhancement works and green management practices.

Assessment of Climate-Related Risks

The Risk Taskforce has been delegated by the Board with the responsibility to review all risks (including climate-related risks) of Sunlight REIT at least on a quarterly basis.

In the Risk Taskforce meeting held in April 2022, climate-related risks were assessed to be well within the acceptable risk tolerance limits of Sunlight REIT. Accordingly, climate-related risks are considered relevant but non-material to Sunlight REIT.

For information relating to the governance, investment management and risk management of climate-related risks, please refer to the “Risk Management” section under Corporate Governance of Sunlight REIT’s website.

Going forward, we will continue to evaluate the relevance and materiality of climate-related risks and opportunities on an annual basis, while leveraging on the use of proptech to detect physical risks and raise the operational efficiency of our property management services, with the aim of enhancing our capability for monitoring and cushioning the potential impacts of climate change on our business in the future.