![]() Also, in 2019 the European Public Real Estate Association (EPRA) launched a comprehensive database covering publicly available ESG data from European REITs in an effort to promote ESG disclosure by the firms. According to a REIT industry ESG report by the National Association of Real Estate Investment Trusts (Nareit) in 2020, there is a growing demand from investors and lenders for REITs to disclose ESG related information Footnote 3.To facilitate REITs to proactively disclose ESG information anticipated by various ESG reporting frameworks, Nareit recently offered the first guide to help its members to understand and navigate the array of ESG disclosure frameworks. Thus, it is not surprising that ESG disclosure has received significant attention recently.įor REITs, ESG disclosure has become a critical issue for their investors, lenders, as well as the industry associations in recent years Footnote 2. Without the consistency and transparency from an effective, standardized ESG disclosure framework, investors and lenders might be misled by various ESG ratings and face significant risks when making investment or lending decisions. However, recent research suggests that ESG criteria are hard to define and there is substantial disagreement across ESG data providers on what ESG rating to give to individual firms (e.g., Christensen et al., 2021). To incorporate the ESG issues in their decision-making, stakeholders must be able to accurately capture ESG related information disclosed by firms. Taken together, this paper suggests that effective ESG disclosure can have a positive impact on REIT debt financing and firm value due to the increased corporate transparency, and the ESG reporting framework developed by GRESB appears to be effective to provide transparency and comparability across the global real estate industry.Īround the globe, investors, lenders and other stakeholders have been increasingly integrating Environmental, Social, and Governance (ESG) factors into their business decisions in recent years Footnote 1. Additional analyses show that ESG disclosure level is sensitive to institutional ownership, implying that institutional investors may drive REIT ESG disclosure efforts. These results indicate that investors do value active ESG disclosure by REITs. ![]() When using the Covid-19 pandemic as a quasi-experimental setting, we find evidence that REITs with higher ESG disclosure levels before the pandemic exhibit higher firm value during the pandemic. Moreover, firm value of REITs is positively associated with their ESG disclosure level. These findings suggest that improving ESG disclosure can help REITs to gain better access to the capital markets and enhance corporate financial flexibility, as lenders have paid close attention to a firm’s ESG disclosure and integrated evaluation of ESG factors into their lending decisions. We find that REITs with higher levels of ESG disclosure have lower cost of debt, higher credit ratings, and higher unsecured debt to total debt ratio, controlling for key firm characteristics. Using recently available GRESB ESG public disclosure data for REITs around the world, we examine how ESG disclosure is related to REIT debt financing and firm value.
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