This study analyzes the financial impact of environmental, social and governance (ESG) practices on real estate investment trusts (REITs). It extends existing research by evaluating how climate policy uncertainty (CPU) and external shocks influence the ESG–performance relationship and by disaggregating environmental components to assess their financial effects.
We use panel data from 26 Singapore-listed REITs covering 2019–2023, with ESG performance measured by Refinitiv scores, which offer a standardized assessment based on publicly available data. The empirical approach applies fixed-effects regression, two-stage instrumental variable estimation and system GMM to address endogeneity. Additional analyses disaggregate ESG pillars and environmental subcomponents and examine interaction effects with CPU and the COVID-19 period.
ESG commitments have a negative or insignificant effect on firm valuation and operational performance. The environmental pillar and its subcomponents do not yield consistent financial benefits. Moreover, ESG practices fail to mitigate adverse effects during periods of CPU and economic downturns. These results remain robust after correcting for endogeneity.
Investors should critically assess ESG initiatives beyond regulatory compliance and focus on firm-specific fundamentals to avoid mispricing and potential value losses. REIT managers should ensure that a clear financial rationale supports ESG adoption to prevent additional costs that may erode shareholder value.
This study enhances ESG–REIT research by employing Refinitiv ESG scores, providing a robust alternative to self-reported sustainability metrics. It extends the ESG–performance framework by integrating CPU as a proxy for external policy risk influencing ESG outcomes. By disaggregating environmental components, this study offers detailed evidence that challenges assumptions about the financial benefits of sustainability.
