In 2014, 634 real estate investment firms submitted data on their environmental, social and governance (ESG) policies and performance to GRESB, a data and benchmark-setting ESG platform for the real estate industry. Last year it was nearly four times that, covering 210,000 assets. ESG, or “sustainability” more broadly, remains a headline priority for a growing number of investment firms. And yet, most investors we know remain unconvinced that ESG actually drives real estate returns.

Well, research says ESG drives alpha: Core-focused Real estate private equity funds that report to GRESB see an average 124-basis-point higher annual total return vs. those that do not. That’s meaningful, especially given that the average fund in the study returned just 1.9% annually.¹

Besides the premium for GRESB-reporters vs. non-reporters, there are premiums for high ESG performance. GRESB gives all reporting firms a set of scores, from zero to five, for different ESG categories, many related to operating metrics at a fund’s assets (e.g. energy use). Funds saw 24-basis-point increases in total annual returns for every one-point increase in GRESB scoring.

The researchers studied fund performance from 2015 to 2019, when GRESB reporting was widely adopted. They used NCREIF data, with a focus on NCREIF’s “Open-End Diversified Core Equity” index and its 25 or so constituent funds that manage more than $200 billion of real estate. These low-leverage funds own stabilized assets in portfolios diversified by product type and geography. Some of the constituent funds were reporting to GRESB at the outset of the study period; all were by the end.

The return premiums came entirely from appreciation, not from income. The authors spoke to this, suggesting GRESB reporting and performance was a market signal that led buyers to pay more for the asset in anticipation of stronger future income returns.

Maybe? If improvements to a fund’s income returns “may take time to materialize” after a fund starts reporting to GRESB, as the authors note, is that appreciation durable or just a function of capital market perception during the study window? That question is especially relevant given the short study period in which these findings were uncovered. Shifting market sentiment can change cap rates, of course, and the pandemic has structurally changed the outlook for several asset types. We need more research to know what’s happened since 2020.

That said, the findings themselves were robust and the premiums held across asset type and geography. For us, besides updated results for more recent time periods, the study left only a few open questions for others to chase down. One big one: Were these results inevitable? Meaning, it is possible that these premiums accrued to funds that were simply better managed and that decided to report to GRESB but would have achieved this alpha in all events. Causality is always hard to pin down and nearly every research paper we review faces this type of question.

What’s not a question: Voluntary ESG disclosure continues to grow through cycles and over more than a decade. The authors say that with adoption, premiums for ESG disclosure will morph into discounts for non-disclosure, and ESG may become “a form of table stakes among elite funds.”

Although that framing feels right for the core funds studied, ESG very likely has different correlations to returns in other contexts, especially when mapped onto different investing strategies like value-add, opportunistic funds and strategies focused on niche asset classes. Data centers raise a particularly interesting question related to ESG given their significant energy use.

If ESG adoption continues apace, we’ll urgency need more and better research into how different types of real estate benefit (or not) from that sustainability focus. Specifically, investors will need sharper tools to make optimal fiduciary decisions and we’ll need faster cycles of research as well.

Who: CAB Advisory

What: Strategic whisperer to middle-market real estate GPs.

The Sparkle: Chris Brimsek, CAB’s CEO, found resume success early at Carlyle Group, running their Global Infrastructure Platform as COO and connecting closely with a global investing elite. He liked it, but when that chapter ended, he got introspective, pivoted and started CAB. Chris advises GPs on go-to-market strategy and team composition, among other things. His superpower: He gets to truth fast with insight into the industry and into a firm’s dynamics, and he is super blunt about his opinions. Chris doesn’t help firms fundraise and often says no to prospective clients, and he still has more business than CAB can handle. He’s like the A-Team for real estate GPs in a real estate world that’s light on true value-add high-level advisory firms.

We love talking about AI and the future of real estate, but it’s also fun to look back; we’re not in “the oldest profession” but pretty close. So thought the people behind Guédelon: A multi-decade project to build a medieval castle using only the materials, tools and techniques available at the time. The castle, in central France, has been called “the world’s biggest archeological experiment.” Here’s a great article on how they approach the building process without knowing some important details, like what, if not glass, goes in the windows?

https://archaeology.org/issues/september-october-2025/features/how-to-build-a-medieval-castle/

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