Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates

Tanja Artiga Gonzalez, Laura Capera Romero, Egle Karmaziene and Xin Yuan

Finance Research Letters, 2025, vol. 71, issue C

Abstract: 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 1.6 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.

Keywords: REITs; Sustainability-linked loans; Loan interest spread; Carbon emissions (search for similar items in EconPapers)
JEL-codes: G21 G32 Q51 Q58 R33 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014442

DOI: 10.1016/j.frl.2024.106415

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