REITs With Higher GRESB Scores Outperform Peers, Study Finds

A new report concludes that committing to sustainability pays off for REITs.

REITs with higher Global Real Estate Sustainability Benchmark (GRESB) scores outperform their peers in terms of returns, according to a study from the University of Cambridge. The study also showed that when adjusted for risk, there is a significant link between REITs’ portfolio sustainability indicators and their performances in the stock market.

“Previous studies have established links between sustainability and improved cash flow at the building level,” said Franz Fuerst, faculty member in the Department of Land Economy at the University of Cambridge. However, the new findings also show that institutional investors value sustainability, according to Fuerst.

Data used in the study came from the GRESB Survey of more than 442 sustainability ratings for global REITs during the period of 2011 to 2014.

The study showed that a REIT’s returns on assets (ROA) and returns on equity (ROE) have a significant positive association with its overall GRESB score. Namely, ROA was shown to increase by roughly 1.3 percent for each 1 percent increase in a REIT’s GRESB score. ROE, meanwhile, was shown to increase about 3.4 percent for each 1 percent increase in the GRESB score.

Nils Kok, co-founder and CEO of GRESB, noted that the positive relationship between GRESB scores and REIT performance strengthens the argument “that engagement and focus on sustainability performance is critical to achieve a long-term competitive advantage for real estate investors and owners.”

Meanwhile, the Cambridge researchers also observed that GRESB scores show “vast untapped potential for further optimization of most REITs’ sustainability practices.”

The study was commissioned by Carbon War Room, a global nonprofit founded by international business mogul Richard Branson and other entrepreneurs.