ESG investing and the financial performance: a panel data analysis of developed REIT markets

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Erol I., Unal U., Coşkun Y.

Environmental Science and Pollution Research, vol.30, no.36, pp.85154-85169, 2023 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 30 Issue: 36
  • Publication Date: 2023
  • Doi Number: 10.1007/s11356-023-28376-1
  • Journal Name: Environmental Science and Pollution Research
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, IBZ Online, ABI/INFORM, Aerospace Database, Agricultural & Environmental Science Database, Aqualine, Aquatic Science & Fisheries Abstracts (ASFA), BIOSIS, CAB Abstracts, EMBASE, Environment Index, Geobase, MEDLINE, Pollution Abstracts, Veterinary Science Database, Civil Engineering Abstracts
  • Page Numbers: pp.85154-85169
  • Keywords: Corporate social performance, ESG investing, PVAR Granger causality test, REITs, Stakeholder theory of corporation, Trade-off hypothesis
  • TED University Affiliated: Yes


This study investigates the empirical link between the social and financial performance of the Real Estate Investment Trusts (REITs) by utilizing the PVAR-Granger causality model and a fixed-effects panel data model with a rich dataset comprising 234 ESG-rated REITs across five developed economies from 2003 to 2019. The results suggest that investors pay attention to individual E/S/G metrics and price each component of ESG investing differently, with E-investing and S-investing practices being the significant financial performance factors of REITs. This study is the first attempt to test the social impact and risk mitigation hypotheses of the stakeholder theory of the corporation and the neoclassic trade-off argument to explore the association between corporate social responsibility and the market valuation of REITs. The full sample results strongly support the trade-off hypothesis, indicating that REITs’ environmental policies involve high financial costs that may drain off capital and lead to decreasing market returns. On the contrary, investors have attached a higher value to S-investing performance, especially in the post-GFC period from 2011 to 2019. A positive premium for S-investing supports the stakeholder theory as the social impact could be monetarized into a higher return and a lower systematic risk and give rise to a competitive advantage.