Environmental, social, and governance performance in real estate investment trusts: level vs. momentum effects across property types

Abstract

This paper investigates how the level and momentum (year-on-year change) in ESG scores affect the financial outcomes for Real Estate Investment Trusts (REITs). I look at 119 REITs during 2010-2024, covering healthcare, hospitality, industrial, commercial, and residential sectors. I show that ESG impacts are varied. Higher ESG levels often reduce short-term profitability in service-heavy sectors, especially in healthcare. Industrial REITs benefit from environmental, commercial REITs from governance efforts. Retail REITs suffer from additional social investments. ESG momentum has an opposite direction to ESG level. My results highlight that both ESG level and momentum matter and effects vary by sector.