This study investigates the empirical link between the social and financial performance of the Real Estate Investment Trusts (REITs) by utilizing the PVAR-Granger causality model and a fixed-effects panel data model with a rich dataset comprising 234 ESG-rated REITs across five developed economies from 2003 to 2019. The results suggest that investors pay attention to individual E/S/G metrics and price each component of ESG investing differently, with E-investing and S-investing practices being the significant financial performance factors of REITs. This study is the first attempt to test the social impact and risk mitigation hypotheses of the stakeholder theory of the corporation and the neoclassic trade-off argument to explore the association between corporate social responsibility and the market valuation of REITs. The full sample results strongly support the trade-off hypothesis, indicating that REITs' environmental policies involve high financial costs that may drain off capital and lead to decreasing market returns. On the contrary, investors have attached a higher value to S-investing performance, especially in the post-GFC period from 2011 to 2019. A positive premium for S-investing supports the stakeholder theory as the social impact could be monetarized into a higher return and a lower systematic risk and give rise to a competitive advantage.

Department of Business Administration TED University Ziya Gokalp caddesi 48 A 06420 Ankara Turkey

Department of International Finance Faculty of Business Ozyegin University Nişantepe Orman Sk No 13 34794 Istanbul Turkey

Macroeconomic Analyses Department Research Institute for Labour and Social Affairs Dělnická 213 12 170 00 Prague 7 Czech Republic

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