Environmental performance and the cost of debt: Evidence from commercial mortgages and REIT bonds

Piet Eichholtz, Rogier Holtermans, Nils Kok*, Erkan Yonder

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

31 Citations (Web of Science)


The increasing societal focus on environmental issues leads to important questions about the relationship between corporate environmental (ESG) performance and firms'' cost of capital, but research on this topic remains scant. The real estate sector offers an ideal testing ground to investigate the relationship in two distinct manners, while specifically addressing concerns about endogeneity. We first investigate the spreads on commercial mortgages collateralized by real assets, some of which are environmentally certified. We then study spreads on corporate debt of property companies (REITs), both at issuance and while trading in the secondary market. The results show that loans on environmentally certified buildings command lower spreads than conventional, but otherwise comparable buildings, varying between 24 and 29 basis points, depending on the specification. At the corporate level, REITs with a higher fraction of environmentally certified buildings have lower bond spreads in the secondary market. These results are robust to different estimation strategies, and signal that environmental risk is efficiently priced in the real estate debt market. Crown Copyright
Original languageEnglish
Pages (from-to)19-32
Number of pages14
JournalJournal of Banking & Finance
Publication statusPublished - May 2019


  • Environmental performance
  • Commercial mortgage valuation
  • Corporate bonds
  • Commercial real estate
  • Real estate investment trusts (REITs)

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