ESG Reporting and Financial Performance Of Reits: A Cross-Sectional Regression Analysis of Developed and Developing Markets

This study investigates the empirical link between environmental, social and governance (ESG) reporting and the financial performance of Real Estate Investment Trusts (REITs) across a developed market (USA) and a developing market (South Africa). ESG reporting on REITs remains underexplored in developing countries (Newell & Marzuki, 2022), which brings into question the level of sustainability and degree of financial optimization of these REITs (Naeem, Cankaya & Bildik, 2022) . This study will investigate whether the financial performance of REITs has any correlation to ESG reporting, or whether it is solely subject to the market conditions around it. The research will provide answers to the questions, (1) “Does ESG reporting in REITs of developing countries result in greater financial performance?” and (2) “If ESG-rated REITs are performing better, by what margin are they doing so in developed countries in comparison to developing countries?”. To find the answer we will use cross-sectional regression analysis to compare four datasets across a ten-year period from 2013 to 2023, namely: The top 10 REITs in the USA and South Africa, and the top 10 ESG-rated REITs in the USA and South Africa (decided by largest market cap). The study will not be looking into the specific components of ESG, but rather ESG reporting as a whole. We expect to find that in both the USA and South Africa, the ESG-rated REITs have a greater financial performance, but we are unable to speculate by what margin they outperform the others by, and if that margin was the same across both countries.