Greenness and financial performance of European REITs

Abstract

Purpose The purpose of this paper is to investigate the link between greenness and the operating performance in 50 listed European real estate investment trusts (REITs). Design/methodology/approach Using a sample of 50 listed European REITs, the analysis leverages on Ordinary least squares models to investigate the relationship between greenness and operating performance indicators. In particular, it examines three types of greenness indicators: the overall Green Real Estate Sustainability Benchmark (GRESB) rating, its two components (management and policy [MP] and implementation and measurement) and the seven aspect scores; return on equity (ROE) and return on assets (ROA) are the fundamental measures of REITs operating performance. Findings The results demonstrate a positive relationship between greenness indicators and operating performance in European REITs, but the impact on ROE and ROA differs depending on the GRESB variable analyzed. If the GRESB rating proved to be significant on ROE and ROA, none of its two components has an impact on ROA, and only the MP score has a positive relationship with ROE. Finally, of the seven aspect scores, only the stakeholder engagement is significant on the two dependent variables. Originality/value The commercial real estate sector has a significant role in tackling climate change issues. To incentivize the market to increase the investments in green buildings, it is essential to find a link between their sustainability characteristics and the improvements they deliver in terms of operating performance. Despite there being a substantial body of literature investigating this connection in the US REITs market, there is still limited knowledge on the relationship between green and operating indicators in the European REITs market.

REITs performance and building energy efficiency

“…The green status may be relevant also for forecasJng the cash flows related to the project because some negaJve cash flows related to the investment opportuniJes may be minimized and profitability for investors may increase. The comparison of the accounJng performance of REITS that invest in green real estate with respect to others has clearly shown that the green opJon has a posiJve impact on the return on assets and the return on equity, and the evidence is clear for both American and European markets (Morri, Anconetani, Benfari, 2021). There is sJll not consensus if green REITs are more transparent and easier to be evaluated because analysts frequently may have the same probability of performance forecasJng errors that they have for not green porPolios (Coën, and Desfleurs, 2022).…”