Does Investing in ESG Pay Off? Evidence from REITs

48 Pages Posted: 29 Jun 2022 Last revised: 11 Oct 2023

See all articles by Ryan Chacon

Ryan Chacon

University of Colorado, Colorado Springs

Zifeng Feng

The University of Texas at El Paso

Zhonghua Wu

Florida International University (FIU)

Date Written: October 6, 2003

Abstract

This article investigates the impacts of environmental, social, and governance (ESG) performance on a firm's valuation, cash flow, and risk. Using newly available GRESB ESG performance data from 2019 to 2021 for global equity real estate investment trusts (REITs), we document that REITs with higher ESG performance scores have lower firm value and lower operating cash flow. Moreover, we show that strong ESG performing REITs exhibit higher firm risk. These results suggest that REIT management may overinvest in ESG activities at the expense of shareholder value. We are the first to our knowledge to provide evidence of overinvestment in ESG for REITs.

Keywords: ESG, Sustainability, REIT, COVID-19, Valuation, Risk, Overinvestment

JEL Classification: G34, Q56, G32, R30

Suggested Citation

Chacon, Ryan and Feng, Zifeng and Wu, Zhonghua, Does Investing in ESG Pay Off? Evidence from REITs (October 6, 2003). Available at SSRN: https://ssrn.com/abstract=4147749 or http://dx.doi.org/10.2139/ssrn.4147749

Ryan Chacon (Contact Author)

University of Colorado, Colorado Springs ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80918-7150
United States

Zifeng Feng

The University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States

HOME PAGE: http://https://sites.google.com/view/zifeng-feng/home

Zhonghua Wu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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