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

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

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.

Suggested Citation

  • Artiga Gonzalez, Tanja & Capera Romero, Laura & Karmaziene, Egle & Yuan, Xin, 2025. "Green gains: The impact of REITs' environmental performance on sustainability-linked loan interest rates," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014442
    DOI: 10.1016/j.frl.2024.106415
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    References listed on IDEAS

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    More about this item

    Keywords

    REITs; Sustainability-linked loans; Loan interest spread; Carbon emissions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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