Assessing the role of green building certifications in the valuation of Real Estate Funds

Abstract

Sustainability has emerged as a critical issue for policymakers and financial institutions, with increasing acknowledgement that the constructed environment is instrumental in fulfilling climate and energy goals. The real estate sector is both resource-intensive and a critical domain where environmental, social, and governance (ESG) factors converge with sustainable value generation. In this context, green building certifications have arisen as reliable indicators of environmental performance, with the objectives of minimizing emissions, increasing efficiency, and enhancing occupant well-being. Although extensive research has investigated the financial consequences of certifications at the asset level, such as rental premiums, reduced vacancy rates, or enhanced operational performance, there is significantly less evidence of their impact at the fund level, where investors distribute capital across diversified real estate portfolios. The literature is split concerning the extent to which the sustainability of underlying assets yields quantifiable benefits for publicly traded real estate investment funds. Therefore, this research thesis aims to examine the correlation between sustainability metrics and the valuation of European publicly traded real estate funds. It specifically examines the role of green certifications and their relationship with fund-level financial performance. The study aims to ascertain if certified assets influence valuation and performance disparities among funds and to investigate how market participants may evaluate these sustainability-related indicators. A distinctive dataset of many European publicly traded real estate funds, spanning multiple years, was created to achieve these goals. The dataset incorporates financial indicators alongside sustainability metrics. The thesis employs descriptive statistics, analysis and panel regression techniques to systematically examine the relationship between sustainable practices and financial performance in the real estate investment industry. The study seeks, then, to enhance the current discourse around the use of ESG and certification methodologies into investment analysis. By redirecting attention from individual properties to portfolio-level dynamics, it aims to provide insights for investors, fund managers, and policymakers seeking to align financial performance with sustainable development objectives in one of the most carbon-intensive sectors globally.