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
- Tanja Artiga González (ORCID: https://orcid.org/0000-0003-1829-8557)
- Laura Capera-Romero (ORCID: https://orcid.org/0000-0001-5324-4146)
- Egle Karmaziene (ORCID: https://orcid.org/0000-0002-9421-5509)
- Yuan Xin
Institutions
- Amsterdam University College (NL)
- Amsterdam University of Applied Sciences (NL)
- Vrije Universiteit Amsterdam (NL)
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