The effect of carbon regulation initiatives on corporate ESG performance in real estate sector: International evidence

Abstract

This study contributes to the existing literature by examining how carbon regulation initiatives influence corporations' ESG actions in the real estate sector, with a special focus on Environmental (E) performance. Specifically, it investigates if stringent carbon regulations like emissions trading systems (ETS) enhance corporates' ESG performance by analyzing data of listed real estate across 37 countries rated by MSCI. Our findings indicate that implementing ETS leads to heightened environmental responsibility in the real estate sector. This supports North's (1990) institutional theory, highlighting the impact of regulations on organizational behavior and business strategies. Our channel analysis suggests that listed real estate leverages ETS-driven regulations to participate in green building initiatives. However, the study does not find comparable effects on carbon taxes. This research highlights the pivotal role of carbon regulations in shaping sustainable practices in the real estate sector.