Does it pay to be responsible? Evidence on corporate social responsibility and the investment performance of Australian REITs

ABSTRACT

This paper creates portfolios to better understand the influence of corporate social responsibility (CSR) practices on the risk-adjusted returns of Australian Real Estate Investment Trusts (A-REITs) from 2007 to 2016. We find that A-REIT portfolios (except for the high CSR-rated portfolio) outperform the broader Asia-Pacific market. We also show that the low CSR-rated A-REIT portfolio delivers the best risk-adjusted return performance. Our findings indicate that while CSR practices might mitigate risk in A-REITs, they do not appear to improve risk-adjusted return performance. However, CSR practices may be effective in producing greater risk-adjusted returns for A-REITs during market downturns or economic crises.

KEYWORDS:

• CSR
• investment
• performance
• real estate
• risk

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. In 2007, LPTs were re-branded to REITs in order to align their terminology with international standards.

2. Stock return momentum is not encountered in Japanese equities markets and therefore not included in the Asia-Pacific market portfolio for multifactor risk-return modelling purposes (Fama and French 2012).

3. See www.mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.

4. Monthly and/or historical CSR ratings are not available. As of 4 July 2017, and for the purpose of conducting the required analyses, the CSR ratings employed are considered stable and demonstrative of the period under investigation (Westermann, Niblock, and Kortt 2018b).

5. CSRHub provides CSR ratings at the company level and is well suited as a provider of reliable CSR ratings. See https://www.csrhub.com/for more details.

6. To establish any rating variation, overall CSR and CSR dimension ratings were statistically compared between the constructed Australian CSR REIT portfolios. Unreported t-tests showed significantly different CSR ratings (1% level) between all combinations of the high, average and low CSR-rated A-REIT portfolios (Westermann, Niblock, and Kortt 2018b).

Additional information

Funding

This work was not supported by any funding agencies/grants nor were there any conflicts of interest.