REITS and CMBS
Paper Session
Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)
- Chair: Spencer Couts, University of Southern California
Timing Sustainable Engagement in Real Assets
Abstract
Investors increasingly invest in a socially responsible manner. However, there is only limited evidence on whether and when this affects the investment decisions of firms. This paper examines the role of depreciation cycles of physical assets in shaping the effectiveness of socially responsible engagements. The costs of improving the sustainable performance of physical assets decline with their depreciation, given lower secondary market prices and operational downtime. Using unique micro-level data of investments in physical assets of listed real estate firms, we exploit exogenous variation in the timing of engagements relative to depreciation cycles of real assets to identify differences in engagement effectiveness on firms. We find that socially responsible engagements lead to an increase in sustainable investments only if they coincide with renovation periods of physical assets. Conversely, engagement is ineffective outside renovation periods. These sustainable performance improvements appear additional, as conventional renovations and property sales are unaffected by engagement. This shows that not only the selection of firms but also the timing of engagements plays a crucial role in transitioning to a more sustainable economy.Climate Hazard Exposure Increases Equity Risk
Abstract
Climate-related hazard exposure is hypothesized to increase the systematic risk of companies that derive their revenues from physical assets. The present analysis finds empirical evidence of this relationship using panel regression and storm path data as a natural experiment in conjunction with an instrumental variable approach. Increased systematic risks for exposed real estate firms are mainly explained by higher cost of debt as well as earnings volatility induced by climate hazard exposure. As avoiding exposure to regions with significant climate hazards is not always feasible or even desirable, other strategies such as selecting assets in more resilient communities within potentially affected areas, increasing the share of sustainable assets, and improving firm-level ESG performance are all shown to attenuate the impact of climate hazard risk on market beta.How Useful are Green Bond Use of Proceeds? Environmental Performance and Capital Market
Abstract
Green bonds are growing in popularity, both as a financial tool and a path toward responsible investing. This brings a demand for measurement of both financial and environmental performance of these instruments. Yet analysis of the latter is largely missing, and that which exists is noisy, due to vague green bond commitments and difficulty in measuring outcomes in general corporations. We capitalize on the uniquely clean nature of REIT green building investments to measure the environmental performance of green bonds, and then analyze the response of capital markets to green bond issuance. Using highly rigorous modelling techniques, we find evidence that green bond issuance leads to enhanced environmental performance for a firm, within a two year horizon. We further find that capital markets appear to evaluate green bond issuers as lower risk investments, offering bond spread discounts to green bond issuers as well as increased access to equity.Discussant(s)
Cynthia Yin
,
Ohio State University
Sehoon Kim
,
Florida University
Brad Cannon
,
Binghamton University
Zipei Zhu
,
University of North Carolina-Chapel Hill
JEL Classifications
- R0 - General