Abstract
Sustainability represents an innovative component of profitability for real estate finance, and among other instruments, real estate funds include a “green” component represented by certified buildings.In particular, the adopted selection criteria refer to the two European most widespread certifications: LEED and BREEAM.The objective is to demonstrate the degree of correlation between the adoption of implemented sustainable policies and financial performance. For this purpose Fama-French Five Factor Model has been applied.This work is oriented in validating the hypothesis, which states that sustainable and environmentally friendly components positively affect the performances of investment portfolios, focusing on the European property management industry. Therefore, this paper has the ambitious aim of filling the gap in current literature on REITs mainly focused on the US market.
Highlights
Investors’ consideration with respect to sustainable and ethical finance tends to go towards the expansion of investment vehicles with cultural, social and environmental inclination (Adamo, Federico and Notte, 2014)
In particular for the determination of funds’ alphas they applied the Capital Asset Pricing Model (CAPM) based Fama French (1993) and Carhart (1997) four factor model. They documented the positive relationship between operating performance and the “greenness” of Real Estate Investment Trusts (REITs), in addition to the absence of link between these and stock performance, deriving that stock prices reflect the higher cash flows generated by investments in more efficient properties
The requirement for each fund in order to be included in the sample has been the availability of fund daily shares last prices and historical yearly, ROE, ROA, Price to Book ratio, Debt Ratio and Funds Total Assets, for the whole considered period (6 years); 26 trusts have been added to the sample as non-green REITs that are characterized by less than 20% or complete absence of green certified sqm under management
Summary
Investors’ consideration with respect to sustainable and ethical finance tends to go towards the expansion of investment vehicles with cultural, social and environmental inclination (Adamo, Federico and Notte, 2014). The dramatically increased spread of ethical finance, which focuses on environmental respect along with economic development and social responsibility, has led to the expansion of a committed financial segment, known as Green Finance (Adamo, Federico and Notte, 2014). The work findings invalidated our hypothesis on improvement of financial performances generated by green components. It has been demonstrated how, in the selected sample and during the selected time period, the percentage of certified building in the REITs portfolio have a negative impact on these performances while improving the stocks’ beta
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