DO ESG LEADERS IN THE REIT SECTORS OUTPERFORM ITS PEERS?EVIDENCE FROM GRESB ASIAN PARTICIPANTS

Abstract

This study explores whether Environmental, Social and Governance goals (ESG), proxied with data from the Global Real Estate Sustainability Benchmark (GRESB), significantly influences REIT performance in Asia. REIT performance indicators are classified broadly into operating and market performance measures. A sample of 74 REITs from five Asian countries are grouped into a categorical GRESB index of non-participants (NP), participants (P) and market leaders (ML) based on their participation in GRESB and star-rating status from 2014 to 2021. A two-stage methodology was employed, comprising Tukey tests in the first stage and two regression models in the second. The Tukey tests identify if significant differences exist between the GRESB index categories. They inform the construction of a recalibrated GRESB index that is utilized in Panel regressions across the REIT asset classes. Finally, Quantile regressions were carried out with data points weighted based on their asset classes. The Tukey tests show that GRESB performance varies significantly across REIT asset classes. Using recalibrated GRESB indexes in the Panel regressions, the GRESB index positively impacts market performance measures of P/B values and total returns, but only for Industrial and Office REITs. Finally, the Quantile regression found significant non-linear relationships between GRESB index and selected REIT performance measures of effective interest rates, net margins, P/B value and total returns. These findings affirm extant literature while providing Asian REIT managers with greater confidence to develop ESG strategies that are adjusted based on the underlying asset classes of their portfolios.