Addressing climate challenges through ESG-real estate investment strategies: An asset allocation perspective

Massimo Biasin, Andrea Delle Foglie and Emanuela Giacomini

Finance Research Letters, 2024, vol. 63, issue C

Abstract: Real estate plays a major role in environmental impact, contributing to nearly 39 % of global emissions and significantly influencing climate change. Using a sample of European REITs (Real Estate Investment Trusts) and real estate companies, this study examines the risk-adjusted performance of real estate investments concerning their ESG (Environmental, Social, and Governance) performance, comparing the diversification benefits of conventional versus ESG real estate investments, with a specific focus on the environmental (E) aspects. The portfolios' asset allocation is designed using the Mean-Variance and the Risk Parity models. Simulations are run using a rolling-window technique, covering the entire sample period along with three different sub-samples. According to our findings, high ESG score real estate portfolios perform similarly to the overall sector, while portfolios with environmental scores above the sample average offer enhanced diversification benefits. This finding is particularly significant, as such portfolios have the potential to generate positive externalities by reducing climate impact through lower emissions.

Keywords: ESG; REITs; Real estate companies; Asset allocation; Risk-parity approach (search for similar items in EconPapers)
JEL-codes: G12 G2 G21 G34 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324004112

DOI: 10.1016/j.frl.2024.105381

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