Timing Sustainable Engagement in Real Asset Investments

A new paper by a team of MIT researchers explores the effect of sustainable shareholder engagement on firm’s sustainable investments – examining the real assets where investments are sporadic and occur following depreciation cycles. The authors – Bram van der Kroft, Impact Fellow at the MIT Climate & Sustainability Consortium (MCSC); Juan Palacios, Visiting Professor at MIT Center for Real Estate; Roberto Rigobon, Professor of Management; and Siqi Zheng, Professor of Urban and Real Estate Sustainability – find that sustainable engagement effectively steers firms to initiate tangible and long-lasting sustainable investments. However, engagement is ineffective or impairs such investments when it does not coincide with reinvestment periods, or investors vote down the proposal. The team uses unique micro-data tracking sustainable and conventional retrofit investments in all US commercial real estate properties over the past two decades. Quarterly sustainable retrofitting information at the ZIP-code and REIT-level are available here.

“It is not only who sustainable investors engage or tilt with, but also when they do so that determines the impact of sustainable financing in instigating sustainable investments,” says van der Kroft. “Should sustainable investors divest from oil companies because they are unsustainable, invest in firms that have yet to improve their sustainable performance, or weigh their portfolios heavily on the few already sustainable firms?  Our work suggests that targeting any firm with substantial real assets will primarily be effective when these assets are sufficiently depreciated, and the firm’s sustainable performance is not yet locked in for many years to come.”

Read the full paper.