Abstract
Sustainability has long been a topic of discussion in the context of climate change, natural resource scarcity, pollution, social responsibility, and human equality. Since introducing the environmental, social, and governance (ESG) concept in 2004, sustainability has increasingly been integrated into corporate business models, particularly through adherence to principles of responsible investment, standardized reporting, and accounting practices. This study examines the impact of ESG factors on the financial performance of Real Estate Investment Trusts (REITs), based on data from Morningstar, Global Real Estate Sustainability Benchmark (GRESB), and European Public Real Estate Association (EPRA), analysing evidence from the reviewed literature. The primary objective is to assess the progress of green transition within the REIT sector and the influence of sustainability initiatives on returns and competitive positioning, with empirical analyses focusing on environmental sustainability (E) and its impact on European REITs’ returns. The methodology employed includes comparative analysis, literature review, and OLS regression analysis. The results indicate a slowdown in ESG implementation progress worldwide, largely attributed to the substantial costs associated with compliance, including developing reporting capacity and sustainable initiatives. Despite observed capital outflows, the 2024 real estate assessment results show notable progress in key areas, including energy efficiency, greenhouse gas emissions reduction, water and waste management, and social engagement practices within REITs. The empirical analysis of large-cap European REITs aligns with existing research, showing progress towards reducing environmental impact in 2022-2024, positively influencing share prices. In terms of financial effects, the reviewed literature suggests that while the short-term financial impact of ESG measures varies, there is a general trend toward improved long-term performance. Although results across individual metrics remain inconclusive, findings indicate that complex sustainability strategies contribute to enhanced competitiveness and overall financial performance.
Keywords: ESG, Financial Return, REIT, Sustainability