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

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  • Biasin, Massimo
  • Delle Foglie, Andrea
  • Giacomini, Emanuela

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.

Suggested Citation

  • Biasin, Massimo & Delle Foglie, Andrea & Giacomini, Emanuela, 2024. "Addressing climate challenges through ESG-real estate investment strategies: An asset allocation perspective," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324004112
    DOI: 10.1016/j.frl.2024.105381
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    1. Afees A. Salisu & Ahamuefula E. Ogbonna & Elie Bouri & Rangan Gupta, 2024. "Climate Risks and Prediction of Sectoral REITs Volatility: International Evidence," Working Papers 202434, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    ESG; REITs; Real estate companies; Asset allocation; Risk-parity approach;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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