GOYOH: Helping solve Japan's ESG compliance challenges

Japanese multifamily buildings are currently keenly sought-after by foreign investors – but they face the twin problems of fierce competition and a need for the assets to be ESG-compliant.

The reality is that while major investors such as Japan’s Government Pension Investment Fund (GPIF) have been vocal advocates of ever-higher ESG standards in Japan, the Japanese real estate market continues to lag in compliance. And ESG compliance is even harder to regulate or enforce in residential than in commercial buildings.

This poses a dilemma for foreign investors required to acquire and manage assets globally in line with their corporate net-zero commitments. Yukihito Ito understands the issue all too well. As a conduit for cross-border investments over many years, the Japanese entrepreneur has sat through meetings between investors and vendors where ESG compliance is the elephant in the room. 

“Investors from France, Germany and the UK have high ESG principles, and they find it difficult to impose their standards in Japan,” Ito says. “Generally, they think that Japan is behind in its ESG commitments.” 

Ito came to recognise that ESG issues might be best resolved by technology. This resulted in the establishment in 2018 of GOYOH, a prop-tech start-up, together with a one-stop ESG management platform EaSyGo, to help global fund managers solve sustainability compliance problems in both commercial and residential buildings.

Ito says the service was developed in response to “huge demand” from global investors around ESG issues. 

GOYOH has signed up several global fund managers, including Paris-headquartered AXA IM Alts and Houston, Texas-based Hines. Ito says GOYOH’s residential services have been particularly useful for investors in multifamily buildings, which have hundreds of tenants in a single property.

He cites River City 21, a complex in central Tokyo of five towers with a total of 1,200 rental apartments, which forms part of AXA IM Alts’ Japan portfolio.

“While owners of residential buildings feel the same urgency to deal with ESG, it is made difficult because tenant data is usually private and the building owner has no access,” he says. “While saving energy is one of the main ways to reduce emissions, owners cannot access 80-90% of electricity usage data in the building.”

Ito has resolved this problem by partnering with a Japanese power company to access smart meters installed in the apartment blocks. “This allows us to identify electricity usage, enabling residential building owners and investors to collect more accurate data. Together with tenants, building owners can work to reduce energy usage.” Ito says tenants cooperate because the incentive is to save energy costs.

GOYOH began working with AXA REIM Japan on the River City 21 complex in 2022. Today, it is working with the owners of some 200 residential apartment blocks and 50 office buildings.

“We recently started working with commercial buildings, including Shinjyuku Park Tower, which was featured in the movie, Lost in Translation,” says Ito. “This building is 30 years old now. But instead of trying to upgrade the building itself, the owner is taking a capex and operational approach to improve social impacts through the EaSyGo platform. Shinjyuku Tower has about 100 tenants, including global firms who demand high ESG standards.”

Last October, the Tokyo Metropolitan Government contracted GOYOH to work with Mitsubishi Estate, a large landlord of prime real estate in the Japanese capital. They will analyse ESG values of both buildings and tenants in the prime central business district of Otemachi-Marunouchi-Yurakucho.

GOYOH offers proptech services to offshore clients in their home countries.  “Our first targets are the cities where our key customers are headquartered – in North America, APAC and Europe,” Ito says. “Our strategy is to go where our customers are based. We know them well and can localise our services in each country. One service we provide for the global market is ESG value analytics, something we understand is not available in other countries yet.”

Ito is well-placed to understand the global real estate market. At just 22 years old, he started an early version of Airbnb in Manhattan, New York, and by 2008 he was working with global fund managers wanting to invest in Japanese properties. 

Today, he is deeply involved with the Japanese chapter of the Carbon Risk Real Estate Monitor (CRREM), sitting alongside GPIF to promote ESG for buildings. CRREM seeks to educate owners about ESG’s financial impact on buildings. Neglected buildings will be penalised with what is called a ‘brown discount’; alternatively, those who work on ESG will attract a ‘green premium’.

“According to a global fund manager who manages more than 400 buildings, a green premium could add as much as 10% to the value of a building,” Ito says. “They have tracked the value of green buildings over the past 10 years.” 

While he is focused on the E in ESG, Ito is really keen on the S. “If stakeholders of buildings get the social aspects right, they can add extraordinary value to a building,” he says, explaining that high tenant acceptance equates to better financial returns for owners.

“Everyone is focusing on environmental challenges – and of course, we are also tackling this,” Ito says. “Our point is that we need to approach the issue from both an environmental and a social point of view.”