Transnational Private Regulations for Sustainable Urban Development

States have endeavored to manage global trade issues and governance of inter-state externalities. However, as numerous goods and services transcend national boundaries, and regulatory tasks have become increasingly globalized with control over national legislation alone, state policymakers have been challenged to regulate transnational investors, markets, and issues, such as global warming, financial crises, food safety risks, deforestation, and cross-border business transactions. Inter-governmental organizations (IGOs) have promoted the revision and enforcement of regulations in the global economy. Transgovernmental networks (TGNs) of regulators have assembled representatives and technical experts from national regulatory agencies, non-governmental organizations (NGOs), private firms, and business organizations. As private corporations become increasingly globalized, many forms of transnational private regulations (TPRs) have emerged since the 1990s for legislation, standard-setting, monitoring of compliance, and implementation of transnational rules, to respond to several challenges posed by the transformation of domestic and international regulatory environments. TPRs are self-regulated, non-state, market-driven regulations. Since the emergence of TPRs, the global rule-making landscape has become dynamic. Urban development and property investment have historically been viewed as local phenomena. Community development and real estate transactions are fundamentally local activities: The regulations and standards in this field have been established and enforced by the governments, local associations, and national professional bodies. However, as urban development and property investment have increasingly become global, the services, transactions, and investments by private firms have transcended national boundaries. As such, it has become difficult for states and IGOs to regulate global activities through existing national legislation or international regulatory systems. Demand for various urban development projects concerning infrastructure investments is growing rapidly, international institutional investors are investing in projects globally, and sustainable urban development issues have become complicated. This chapter overviews the mechanism of TPRs in global property investment and the effectiveness of TPRs for sustainable urban development.

To analyze the mechanism and conditions of the effectiveness of TPRs in global property investment, this chapter proposes and utilized the Orchestrator - Regulator - Intermediary I - Intermediary II - Target - Organizer (ORIITO) model. The ORIITO model can properly examine the relationships among IGOs, TPR regulators, “intermediaries I” (e.g., global business associations), “intermediaries II” (e.g., domestic business associations), and targets such as firms and organizers (states). This is different from using the Regulator - Intermediary - Target (RIT) and the Orchestrator - Intermediary - Target (OIT) model under which the regulators and orchestrators have previously attempted to change the targets’ behavior through intermediaries who monitor and manage them. This study proposed the ORIITO model because of its ability to examine the mechanism of TPRs, by analyzing the dynamic establishing and implementation system in global property investment and the expansion functions of IGOs and states, as orchestrators and organizers with targets and other actors. With its ability to analyze state commitment in TPRs sufficiently through a multiple feedback loop system among orchestrators, regulators, intermediaries, targets, and organizers in the process of the TPR establishing, monitoring, and implementation, the ORIITO model is superior to the RIT and OIT models for examining the mechanism of TPRs. This study hypothesizes that TPRs’ effectiveness can be determined when: (a) TPR legitimacy is ensured due to expertise and public commitment, clear criteria for membership, and transparent decision-making processes (Securing legitimacy); (b) TPR regulators are focal within the relevant area (Regulator focality); (c) orchestrators, states, regulators, and other actors share the same goals to address policy issues (Goal similarity); (d) intermediaries with correlated goals and complementary capabilities are available (Intermediary availability); and e) TPRs can be implemented when states are involved in collaborations with other stakeholders as organizers (State commitment). These conditions can lead to the effectiveness of TPRs, by (1) transparent engagement with TPR regulators and other stakeholders, (2) improving compliance for market stakeholders, and (3) escalating the uptake of TPR implementation.

Chapter 3 (Category I) examines TPRs in urban development from an economic perspective, such as the Global Real Estate Transparency Index (GRETI) and the International Valuation Standard (IVS), which were established and are implemented with implicit participation and state inclusion. GRETI has been established, monitored, and implemented through close engagement with Jones Lang LaSalle (JLL), intermediaries, and states to improve transparency for the expansion of the property investment market and economic revitalization. Transparency improvement with GRETI has become an incentive for states with a high degree of sincerity to promote global property investment. In the case of International Valuation Standard (IVS), acceptance and understanding have spread in many countries because global property investment through the IVS has led to fewer troubles and secure efficient and safe transactions. The G20 has encouraged the regulatory authority in each state to promote regulatory convergence by cooperating with International Valuation Standards Council (IVSC), which has led to states committing to using the IVS. The case study indicated that GRETI and the IVS have been established, monitored, and implemented by securing legitimacy through close engagement with IGOs, regulators, states, and other key stakeholders, resulting in greater state commitments. These elements have resulted in increased implementation.

Chapter 4 (Category II) analyzes TPRs in urban development from an environmental perspective, focusing on the Global Real Estate Sustainability Benchmark (GRESB) and the Leadership in Energy and Environmental Design (LEED), which were established and are implemented through explicit cooperation and inclusion of states and regulatory beneficiaries. GRESB has become an incentive for listed property companies, private property funds, developers, and investors, as well as states promoting ESG investment. GRESB has, in particular, become an incentive for firms in developed states that have engaged in both PRI and ESG in the 2000s but has not been incentivized for developing states and small markets, where there are fewer major developers and investors. In the case of LEED, some countries have established ambitious targets and monitoring systems with the USGBC and World Green Building Council (WGBC); however, LEED has not become an incentive for states that have other green building certification systems and lack the availability of domestic intermediaries for LEED implementation. Necessary understanding of the management of global policy and the application of LEED in developed states with global developers and investors is accessible. However, various regulations have impeded the dispersion of unified standards. Another challenge for the sustainable property investment benchmark or the green building certification movement is the lack of awareness and information regarding the benefits of green buildings for all stakeholders.

Chapter 5 (Category III) examines TPRs in sustainable community management from a social perspective, evaluating the mechanism, conditions, and effectiveness of brownfield redevelopment standards, such as the Sustainable Remediation Forum (SURF) and the Joint Commission International (JCI) certifications for CCRCs. SURF has been underutilized in Asian countries, due to insufficient coordination with intermediaries and weak commitment from states. Incentives to implement SURF standards have been weak for states because soil safety has been controlled by each country’s regulatory bodies, even with the globalizing market. While brownfield properties are more complicated to redevelop than properties without contamination, benefits of brownfield redevelopment by SURF with state commitment have been limited in some countries. In the case of JCI, although the market is globalizing, state commitment has been weak because social issues such as global aging and community management for seniors have been controlled through country-specific regulations. The effectiveness of the JCI has been anemic due to the lack of incentives for states and minimal domestic intermediary availability for JCI implementation. The effectiveness of SURF and the JCI in the area of social issues has been weaker than other TPRs because of the inability to secure legitimacy, intermediary availability, and state commitment.

The study concluded that TPRs may enhance effectiveness when they are established and implemented by (a) securing legitimacy, (b) strengthening regulator focality, (c) conforming goals, (d) establishing commitment through intermediaries with conformed goals and complementary capabilities, and (e) acquiring state commitments that provide incentives to use the TPR and collaborate with targets and other stakeholders as organizers. These conditions can lead to (1) transparent engagement with regulators and other stakeholders in the implementation of TPRs, (2) improved compliance of market stakeholders, and (3) increased TPR implementation. The effectiveness of TPRs in global urban development is different in economic, environmental, and social cases. In the economic field, improved transparency and consistency with international standards directly affect the international competitiveness of the state and the growth of firms in each country; improved transparency with GRETI provides incentives for states to promote global property investment and economic revitalization. The effectiveness of GRETI and the IVS has been higher through securing legitimacy and state commitment. As interests of states for global environmental issues have increased, and as ESG investment activities have become determinant factors in the competitiveness of the state or firms, the effectiveness of TPRs in environmental issues, such as GRESB and LEED, has been moderately secured. This has been achieved through cooperation with intermediaries such as business associations and state commitment in developed countries. Conversely, TPRs in social issues have not become an incentive for states because such issues have been addressed in accordance with country-specific laws and regulations. The effectiveness of SURF and the JCI has been lower than TPRs in economic and environmental cases because of weak legitimacy and lower state commitment.