ESG performance variability: profitability and market implications for real estate entities in a worldwide context

Purpose The central aim of this study is to examine the relationship between ESG metrics and financial outcomes in the real estate industry, honing in on particular sectors and geographical areas. Utilizing ESG ratings and pillar scores as indicators of sustainability performance, this research endeavors to discern their effects on measures of profitability and market performance. Design/methodology/approach Drawing on a dataset encompassing more than 200 publicly listed companies in the real estate sector, this research utilizes a fixed effects regression model and instrumental variables to scrutinize the data. This approach enables a thorough evaluation of how governance, environmental and social dimensions influence the financial and market outcomes of these entities. Findings The research reveals a complex relationship between ESG factors and financial performance, defying any simplistic, universal application. The connection is marked by diversity, deeply influenced by the unique aspects of each real estate industry segment and the particularities of regional markets. Specifically, the environmental aspect often corresponds with an increase in ROA, yet this pattern is not consistent throughout all cases. On the other hand, the social aspect is frequently associated with diminished performance indicators, while the influence of governance factors varies, affecting financial outcomes less predictably. Originality/value With its pioneering methodology, the research delves into the granular impacts of ESG factors within individual real estate sectors and specific countries. Insights into the Real Estate Rental, Development and Operations sector as well as firms operating in Oceania, extend the conversation in an area of ESG literature that has been relatively uncharted. Moreover, the study’s illumination of how environmental, social and governance elements distinctly influence financial results injects fresh viewpoints into the ongoing dialogue on sustainable business practices.