Climate Change

At the 27th United Nations Climate Change conference – COP27 in 2022, global leaders reiterated their commitment to limit the increase in global temperatures to a maximum of 1.5 degrees Celsius above pre-industrial levels. An aggressive reduction of GHG emissions by 45% by 2030 as compared to 2010 levels, shall be made to achieve such target. The Government of the HKSAR (the “Government”) announced Hong Kong’s Climate Action Plan 2050, with net-zero electricity generation and energy-saving and green buildings being two major decarbonization strategies. In particular, a long-term target has been set to reduce electricity consumption of commercial buildings by 30% to 40% by 2050. As the Manager of Sunlight REIT, we have been engaging with our stakeholders to promote environmental protection throughout the entire business chain. We are committed to strengthening our preparedness and implementing mitigation measures ahead of time to cope with future climate-related risks.

The Board has adopted a climate change policy that affirms our dedication to managing relevant risks within our operations. It also devises strategies to mitigate, adapt and enhance our resilience in response to such risks. Our risk management framework includes the evaluation of ESG and climate-related risks on a quarterly basis, enabling us to monitor any probable climate-related concerns that may impose adverse impact on the financial and operational aspects of our business.

During the Year, we maintained our vigilance in monitoring and addressing climate-related concerns that are pertinent to our business. We have identified both physical and transitional risks and formulated responses to mitigate their potential impacts on our business operations as follows::

Physical risks

Acute risk:

• The heightened intensity of extreme weather conditions has the potential to inflict significant harm on our building envelopes, including broken windows, damaged glass doors, water leakage and severe breakdown for our aging properties. Such damage could lead to more downtime for maintenance and disruptions to our business operations and potential revenue losses.

Chronic risk:

• Our properties may experience an increase in energy consumption to maintain a comfortable room temperature during heatwaves, while changes in rainfall patterns may result in flooding. As a result, we anticipate that extreme weather events will lead to more investment in capital expenditure to monitor and manage such potential damages, which implies the likelihood of higher operating and maintenance costs.

Transition risk

Policy risk:

• The possibility of more stringent sustainability policy requirements from the Government and regulatory bodies regarding climate change, emission regulations and reporting obligations looms, may translate into higher operating costs.

Market risk:

• Changes in customer behaviour may lead to a reduced demand for conventional products and services as consumers increasingly prefer green alternatives, which may be more costly. Consequently, the transition to a low-carbon and renewable energy-driven economy is likely to result in increased operating costs to us.

Our Responses:

• Monitor potential water leakage of external walls of certain aging properties.
• Conduct training on sustainable finance and climate change to enhance management and staff awareness.
• Regularly review and analyze local and international standards and reporting requirements.
• Implement asset enhancement initiatives to mitigate losses arising from extreme weather events.
• Enhance the environmental performance of the portfolio through building improvement projects and green management practices.

Assessment of Climate-Related Risks

The Manager conducted an annual evaluation of the relevance and materiality of climate-related risks and opportunities and concluded that the climate-related risks were relevant to Sunlight REIT’s business, but the impact of which was immaterial.

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.

To enhance our ability to monitor and minimize the potential impacts of climate change on our business, we will utilize proptech to identify physical risks and improve the operational efficiency of our property management services. Furthermore, we will actively engage in the planning work towards the adoption of the TCFD framework.