A Hybrid Modeling Framework for Evaluating ESG Investment Risks in Highway Real Estate Investment Trusts: Insights from Chinese Highway Assets

ESG (Environmental, Social, and Governance) considerations are increasingly influencing REIT (real estate investment trust) investment decisions; however, empirical evidence on the ESG–financial performance nexus in infrastructure REITs remains scarce. Given China’s nascent highway REIT market, this exploratory study proposes a hybrid modeling framework that integrates static econometric analysis with dynamic system simulation to examine how ESG factors affect investment risk. Using VaR (Value at Risk) analysis and an ESG-adjusted CAPM (Capital Asset Pricing Model) on 10 Chinese highway REITs (2021Q2–2025Q2), we constructed a composite ESG indicator via a weighted proxy approach. We identified three key findings testing hypotheses linked to ESG finance theory; these findings support H1 (non-monotonic VaR reduction) and partially confirm H2 (inverted-U path with lag): (1) the ESG-adjusted weighted average cost of capital (WACC) exhibits an inverted U-shaped trajectory with post-peak oscillations and an overall 20-month implementation lag (derived from system dynamics simulations) to efficiency realization; (2) the results suggest initial evidence showing that an ESG investment intensity (IEP ≈ 0.40, representing moderate ESG resource allocation) may indicate potential outperformance over both under-investment (−5.0% deviation in risk-adjusted returns) and over-investment (−8.0% deviation in risk-adjusted returns), though with uncertainty in static estimates; and (3) system dynamics validation suggests potential predictive accuracy. These preliminary findings challenge linear ESG–performance assumptions and offer dynamic risk assessment tools; nevertheless, as an exploratory study, they warrant replication in larger and more diverse samples. Thus, the results should be regarded as preliminary guidance rather than conclusive evidence, with further validation needed to confirm generalizability.