Environmental Performance and the Cost of Capital: Evidence from REIT Bonds and Commercial Mortgages
نویسنده
چکیده
The real estate sector is responsible for a significant greenhouse gas externality, which has prompted interest from policy makers, as well as the emergence of voluntary disclosure standards. As opposed to general concerns about the potentially negative impact of “sustainability” programs and initiatives on corporate financial performance, energy efficiency measures may lead to significant returns in the real estate sector. This paper investigates the relation between real estate sustainability and the cost of the debt. Using a sample of REITs, we investigate both corporate-level debt, as well as commercial mortgages to finance individual buildings. The results show that the degree to which REITs invest in efficient buildings is positively related to the quality of their credit ratings, and it is also associated with a significantly lower spread. The relation persists at the level of individual buildings and their mortgages: environmentally-certified buildings are financed at significantly lower spread, varying between 30 and 60 basis points, depending on the specification. JEL Codes: G51, M14, D92
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