Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates

• REITs' emission reductions boost their likelihood of securing SLLs. • A 1% drop in emission intensity raises the SLL selection probability by 29.6%. • SLL interest spreads respond to REITs' decarbonization efforts, unlike non-SLLs. • Banks prefer SLLs for REITs with established sustainability strategies. This paper examines the relationship between environmental performance and the use of sustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find that a 1% reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by 29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basis points. Our results reveal that banks reward REITs' previous environmental record through SLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore the importance of explicit sustainability-linked financial instruments in incentivizing decarbonization efforts within the real estate sector.

Authors

Institutions

Publication Details

Journal
Finance research letters
Published
2024-11-03
DOI
https://doi.org/10.1016/j.frl.2024.106415
Citations
5
Primary Topic
Housing Market and Economics
Type
article
Field-Weighted Citation Impact
5.65
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates

Tanja Artiga González, Laura Capera-Romero, Egle Karmaziene, Yuan Xin
5 citations
Finance research letters
Housing Market and Economics
5.65
article

Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates

Tanja Artiga González, Laura Capera-Romero, Egle Karmaziene, Yuan Xin
article en
5 citations

Abstract

• REITs' emission reductions boost their likelihood of securing SLLs. • A 1% drop in emission intensity raises the SLL selection probability by 29.6%. • SLL interest spreads respond to REITs' decarbonization efforts, unlike non-SLLs. • Banks prefer SLLs for REITs with established sustainability strategies. This paper examines the relationship between environmental performance and the use of sustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find that a 1% reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by 29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basis points. Our results reveal that banks reward REITs' previous environmental record through SLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore the importance of explicit sustainability-linked financial instruments in incentivizing decarbonization efforts within the real estate sector.

Finance research lettersVol. 71
Amsterdam University College (NL), Amsterdam University of Applied Sciences (NL), Vrije Universiteit Amsterdam (NL)
Responsible consumption and production
Openalex Percentile: Top 4%
Housing Market and Economics
5.65
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.