Sustainability and Private Equity Real Estate Returns

This paper explores private equity real estate fund performance and voluntary environmental, social, and governance (ESG) disclosures. Using data from the National Council of Real Estate Investment Fiduciaries (NCREIF), it examines the relationship between performance for funds in the Open Ended Diversified Core Equity (ODCE) Index and reporting to the Global Real Estate Sustainability Benchmark (GRESB), a platform for disclosure about fund/firm-level ESG strategies and performance. The empirical analyses suggest four conclusions. First, there has been substantial adoption of and reporting to GRESB in the last 5 years, suggesting that reporting to GRESB is a form of table stakes for ODCE members. Second, GRESB participation and performance are both significant predictors of cross-sectional fund returns. Third, GRESB participation and performance are associated with the price appreciation component of fund total returns but not with the income component. Fourth, the relationships between fund returns and GRESB participation and scores are independent of local economic conditions. These results close an important gap in the literature about private equity real estate fund performance and ESG/climate change mitigation efforts in commercial real estate markets.