Green Gains: The Impact of REITs’ Environmental Performance on Sustainability-Linked Loan Interest Rates

L.M. Capera Romero; Tanja Artiga Gonzalez; Egle Karmaziene; Xin Yuan

doi:10.1016/j.frl.2024.106415

Green Gains: The Impact of REITs’ Environmental Performance on Sustainability-Linked Loan Interest Rates

L.M. Capera Romero, Tanja Artiga Gonzalez, Egle Karmaziene, Xin Yuan

Research output: Contribution to Journal › Article › Academic › peer-review

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 1.69 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.

Original language	English
Article number	106415
Journal	Finance Research Letters
Volume	71
Issue number	January
DOIs	https://doi.org/10.1016/j.frl.2024.106415
Publication status	Published - 2025

Keywords

REITs
Sustainability-Linked Loans
Loan Interest Spread
Carbon emissions

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10.1016/j.frl.2024.106415

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Cite this

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title = "Green Gains: The Impact of REITs{\textquoteright} Environmental Performance on Sustainability-Linked Loan Interest Rates",

abstract = "This paper examines the relationship between environmental performance and the use ofsustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find thata 1% reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basispoints. Our results reveal that banks reward REITs' previous environmental record throughSLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore theimportance of explicit sustainability-linked financial instruments in incentivizingdecarbonization efforts within the real estate sector.",

keywords = "REITs, Sustainability-Linked Loans, Loan Interest Spread, Carbon emissions",

author = "{Capera Romero}, L.M. and {Artiga Gonzalez}, Tanja and Egle Karmaziene and Xin Yuan",

year = "2025",

doi = "10.1016/j.frl.2024.106415",

language = "English",

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journal = "Finance Research Letters",

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T1 - Green Gains: The Impact of REITs’ Environmental Performance on Sustainability-Linked Loan Interest Rates

AU - Capera Romero, L.M.

AU - Artiga Gonzalez, Tanja

AU - Karmaziene, Egle

AU - Yuan, Xin

PY - 2025

Y1 - 2025

N2 - This paper examines the relationship between environmental performance and the use ofsustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find thata 1% reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basispoints. Our results reveal that banks reward REITs' previous environmental record throughSLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore theimportance of explicit sustainability-linked financial instruments in incentivizingdecarbonization efforts within the real estate sector.

AB - This paper examines the relationship between environmental performance and the use ofsustainability-linked loans (SLLs) by U.S. real estate investment trusts (REITs). We find thata 1% reduction in past carbon emissions increases the REITs' likelihood of taking an SLL by29.6%, while a 1% slower growth in past emissions reduces the interest spread by 1.69 basispoints. Our results reveal that banks reward REITs' previous environmental record throughSLLs, whereas non-SLL interest spreads remain unaffected. These findings underscore theimportance of explicit sustainability-linked financial instruments in incentivizingdecarbonization efforts within the real estate sector.

KW - REITs

KW - Sustainability-Linked Loans

KW - Loan Interest Spread

KW - Carbon emissions

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DO - 10.1016/j.frl.2024.106415

M3 - Article

SN - 1544-6123

VL - 71

JO - Finance Research Letters

JF - Finance Research Letters

IS - January

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ER -