Theory to Practice

Green is good for real estate

Sustainability strategies in the real estate industry have a positive impact on both ROE and ROA. What’s more, companies should focus more on engaging everyone affected by internal decisions 

The context

The discussion on global warming is permeating the whole world of business, so much so that information about how companies perform on sustainability issues (ESG) is a structural driver of investment choices. The real estate industry certainly isn’t immune to this trend, seeing that non-residential buildings contribute to the emission of fossil fuels by more than 8-9% on a global level. Based on this evidence, relating to enhanced investor awareness of the climate change crisis, investments are gaining speed in new green structures and in modernizing traditionally-designed buildings.


But do totally sustainable investments improve financial performance? The answer is not a given, and actually the question is still open to debate. Real Estate Investment Trusts (REITs) face both costs and benefits in developing green buildings, but the impact on operating performance is not entirely clear. If on one hand, better performance on sustainability may lead to stronger financial performance, on the other, the initial investment is higher for green buildings. The main implication here is that REIT managers don’t have clear guidelines as far as how lucrative these types of investments may potentially be.

The research

To fill this gap, we recently conducted a study with the aim of assessing the impact of the components of the Green Real Estate Sustainability Benchmark (GRESB), offering an overview on how ESG targets are integrated into the business strategy of REITs. At a more general level, our aim was to analyze the link between green investments and operating performance of 50 listed European REITs. In doing so we hope to shine a light on the type of sustainable investments that can lead to better operating performance. The time horizon for our data set spanned five years (2012-2016), starting just after changes were made in the data collection method used for GRESB ratings in 2011.


Our findings underscore the fact that the GRESB rating positively impacts both ROE and ROA, more or less to the same degree. However, we did not detect a similar relationship in two of the GRESB components: MP (Management and Policy) and IM (Implementation and Measure). This suggests that the approach to managing investment portfolios or relationships with stakeholders cannot be seen from a stand-alone perspective with respect to the execution and measurement of performance on the portfolio itself, since the two areas of analysis, MP and IM, are closely correlated. Irrespective of these initial considerations, when we delved into aspect scores, the part of the GRESB system centering on valuing individual ESG issues, elements emerged which have statistically relevant empirical value when taken separately. Specifically, Stakeholder Engagement (SE) activities have a significant impact on both ROA and ROE. This would suggest that companies willing to invest in training on sustainability issues, in surveys on employee satisfaction, in health and safety, and in community outreach will achieve better operating performance than other companies in the industry.

Conclusions and takeaways

“Going Green” can actually shore up operating performance, and the GRESB Rating appears to be a relevant indicator, one to keep in mind when designing top-line strategies and building investment portfolios. Stakeholder engagement is another salient factor, which clearly emerges the expanding role of people inside and outside organizations.  


More broadly, results relating to this latter dimension unmistakably show that what makes the difference in the performance of a company, wherever its location and whatever its industry, is the engagement of all the people impacted by decisions. Stakeholders play a key role in the corporate context, because they can readily support or oppose the initiatives that management proposes, shaping the success of the project in question and in turn the operating performance of the company. Therefore, actively onboarding stakeholders in the decision-making processes that pertain to them will enable the company to achieve higher operating results than the rest of the industry. So, by all means companies should invest in training on sustainability-related issues, and explore employee satisfaction, and pay attention to health and safety issues – all this through concrete actions, as well as initiatives that actively engage the local community.