ESG PERFORMANCE AND MARKET DYNAMICS OF CHINA'S PUBLIC REITS — AN EMPIRICAL ANALYSIS

INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 430 ESG PERFORMANCE AND MARKET DYNAMICS OF CHINA'S PUBLIC REITS — AN EMPIRICAL ANALYSIS Jiang Yuhao1, Volha Holubava2 1Belarusian National Technical University. Department of Civil Engineering. PHD student in economics; 2Belarusian National Technical University. Department of Civil Engineering. https://doi.org/10.5281/zenodo.17266849 Abstract. This paper explores the nexus between Environmental, Social, and Governance (ESG) performance and the market performance of China's nascent public Real Estate Investment Trusts (C-REITs) market. Based on a comprehensive dataset of 47 C-REITs as of October 2024, this research develops a proprietary ESG scoring system that is customized to the idiosyncratic nature of Chinese infrastructure assets. With the panel data regression analysis, we examine the impact of ESG scores on the key performance indicators like total return, dividend yield, and valuation multiples after controlling for asset type, size, and liquidity. We find a statistically significant positive correlation between superior ESG performance and higher dividend yields and valuation premiums, suggesting that C-REITs investors value sustainable operations and robust governance structures. Keywords: C-REITs, ESG, Market Performance, Sustainable Investing, Infrastructure Finance China's public Real Estate Investment Trust (REIT) market (C-REITs), which was officially launched in mid-2021, has exhibited phenomenal growth and is rapidly becoming a fundamental component of the nation's capital markets. The market has expanded to 47 listed products with total market capitalization of ¥127.4 billion as of October 2024. The rate of issue has accelerated significantly, with 17 new listings in 2024 alone, a 183% increase in the number of issues in the previous year [1]. Policy support is strongly underpinning this growth, with the goal of breathing new life into existing infrastructure assets, deleveraging local government balance sheets, and providing the public with stable income-generating investment products. Although the financial performance of C-REITs is closely tracked, the heightened global emphasis on responsible and sustainable investing has thrust non-financial aspects, more precisely Environmental, Social, and Governance (ESG) considerations, into the forefront The link between corporate financial performance (CFP) and corporate social responsibility (CSR), or rather its modern incarnation ESG, has been the subject of prolific scholarly investigation in the last decades. Within the context of the global real estate sector, this connection has been more specifically examined. Newell & Lee (2021) provide a detailed review of ESG development in the listed real estate industry globally, outlining increased ESG disclosure and performance during the past decade [2]. To take the environmental "E" pillar, which is particularly tangible in real estate, studies have consistently found a "green premium." For instance, studies show that green-certified property (e.g., LEED, BREEAM) rents at a premium, has greater occupancy, and sells at premium prices. Feng, Wang, and Zhang (2022) extended this observation to the REIT context INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 431 and found that U.S. REITs with a higher proportion of green-certified properties in their portfolios exhibit better operating performance and stock returns [3]. However, if the findings are applicable to the Chinese market must be cautiously examined. The market for C-REITs is also different in several respects: it is dominated by infrastructure assets rather than traditional commercial real estate; it has a unique legal and regulatory framework; and it is at a far less developed stage. The various underlying assets, such as toll roads, sewerage treatment plants, and solar farms, each have different ESG profiles from office blocks or shopping centers. Moreover, standardized, third-party ESG ratings for C-REITs are not yet widely available, posing a methodological challenge for researchers. This study builds on the early efforts in developed markets [2, 3] but adapts its methodology to fit the specific data environment and asset profile of China's public REITs market, thereby contributing a much-needed, context-specific study to the literature. 1. Sample and Data Sources The sample in the present study includes all 47 publicly listed C-REITs in the Shanghai and Shenzhen Stock Exchanges as of October 15, 2024. The REITs Market Tracking Bi-weekly Report (2024.10.15) serves as the main source of financial performance, market activity, and structural data [1], offering a holistic and up-to-date snapshot of the market. These data encompass market capitalization, asset types, trading volumes, dividend payments, and valuation multiples. To enable panel analysis, this cross-sectional data was complemented by historical time-series data for single REITs from the Wind Financial Terminal, China's premier financial data vendor. The research period spans from the commencement of each REIT to October 11, 2024. 2. Variable Measurement To create a multi-faceted view of performance, we use three alternative dependent variables based on the data and analysis in the source report [1]: Dividend Yield (DivYield): Calculated as total dividends per share over the last twelve months, divided by the current share price. This is a critical measure for REITs, since they are designed as income vehicles. Valuation Multiple (P/AFFO): Price to Adjusted Funds from Operations. We use Price to Distributable Amount as a direct proxy, as provided in the report for property-type REITs. It is a traditional valuation metric reflecting market expectations of future cash flow generation. Total Return (TotalReturn): The total return over the previous year, including both price appreciation and reinvested dividends. This reflects the overall wealth creation for investors. Since standardized third-party ESG ratings for C-REITs were not available, we constructed a proprietary ESG scoring methodology. Data was hand-picked from official filings, including prospectuses, annual reports, and half-yearly reports of the REITs. Each REIT was scored on a 0-10 scale for a list of 12 important indicators, which were then aggregated to arrive at a composite ESG score (0-100). The system is as follows: Environmental (40% weight), Social (30% weight), Governance (30% weight) Quality and transparency of information disclosure. Independence of the board/decisionmaking committees. Clarity and fairness of related-party transaction structures. Unitholder rights protection mechanisms. 3. Model Specification To test our hypotheses, we employ a panel data regression model. The model is as follows: INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 432 Where: Performance it is one of the three dependent variables (DivYield, P/AFFO, TotalReturn) for REIT i at time t. ESG it is the overall ESG score for REIT i at time t. Control variables are as defined in the prior section (Type, LogSize, Turnover, LogAge). α is the intercept term. β 1 is the coefficient of primary interest, which represents the impact of ESG performance. ε it is the error term. Descriptive statistics for all the variables used in the analysis are presented in Table 1. The average ESG score of the 47 REITs is 63.5, with a standard deviation of 15.2, indicating substantial variation in ESG performance among the sample. Public Rental Housing and Clean Energy REITs are higher, reflecting their implicit social and environmental missions. The mean prior year's dividend yield is 6.85%, reconfirming the high-income nature of the asset class in the source report [1]. The valuation multiple (P/AFFO) of the property REITs averages 22.17, reflecting high growth expectations anticipated by the market. Table 1: Descriptive statistics of key variables Variable Obs Mean Std. Dev. Min Max Dependent Variables Total Return (%) 47 9.69 8.34 -17.27 29.49 Dividend Yield (%) 47 6.85 3.12 3.02 17.21 P/AFFO (Property only) 29 22.17 4.51 16.23 32.96 Independent Variable ESG Score (0-100) 47 63.5 15.2 35 91 Control Variables Type (1=Property) 47 0.62 0.49 0 1 LogSize (in million) 47 7.82 0.75 6.45 9.03 Turnover (%) 47 0.92 0.31 0.54 1.36 LogAge (in months) 47 3.25 0.55 1.61 3.87 Figure 1 reports our panel regression results. The results robustly confirm our hypothesis that ESG performance is positively valued in the market for C-REITs, but its impact varies with respect to the different performance measures. INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 433 Figure 1: Regression Results of ESG on Market Performance The regression results have a number of key implications. Firstly, ESG Score has a positive and highly significant coefficient in both the Dividend Yield (β=0.082) and P/AFFO (β=0.121) models. This shows that REITs with superior ESG performance are linked to higher dividend yields and are given a higher valuation premium by the market. This finding aligns with the global literature [3] and corroborates the argument that Chinese investors consider good ESG practice as an indicator of lower risk and more sustainable, stable cash flows, the lifeline of a REIT. The fact that the C-REIT has a high mandatory payout ratio implies that operating stability, one of the foremost advantages of good ESG management, can be translated directly into investors' returns. The influence of ESG Score on Total Return is positive, albeit not statistically significant. This is not entirely surprising. Shortto medium-term total returns are often dominated by broader market sentiment, interest rate fluctuations, and macroeconomic conditions, which can overwhelm the more subtle, longer-term impact of ESG performance. The correlation chart in the source report of REITs' low correlation with broad equity benchmarks like the CSI 300 also adds further credibility to the notion that their returns are governed by different drivers [1]. Conclusion This study provides one of the first empirical investigations on the financial materiality of ESG performance in the rapidly developing Chinese public REITs market. By creating a bespoke ESG scoring system and implementing it for a sizable sample of 47 C-REITs, we find strong evidence that ESG performance is a valuable driver. Specifically, higher ESG ratings are accompanied by more attractive dividend yields and valuation multiples, even after controlling for relevant financial and structural determinants. The results suggest that the integration of ESG analysis into the investment process of C-REITs is not merely an ethical necessity but a financially prudent strategy. Proactive investment in green technologies, good safety and community relations, and high standards of governance can lead to a lower cost of capital and a "sustainability premium" in the form of higher valuations. As the C-REIT market matures, policymakers can encourage standardised ESG disclosure standards for infrastructure assets. This study is not without its limitations, most significantly the relatively short history of the C-REITs market and the proprietary nature of the ESG score. Future research would do well to attempt to validate these findings over a longer time frame and strive towards developing more standardized ESG metrics as the market and disclosure conventions mature. -10 0 10 20 30 40 50 0 2 4 6 8 10 12 14 16 (1) Total Return (2) Dividend Yield (3) P/AFFO INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 434 REFERENCES 1. REITs Market Tracking Bi-weekly Report. [Electronic resource] // East Money — Access mode: https://pdf.dfcfw.com/pdf/H301_AP202410161640317329_1.pdf — Access date: 09/09/2025. 2. Newell, G. The evolution of ESG in the listed real estate sector. / G. Newell, C. L. Lee // Journal of Property Investment & Finance — 2021. — Vol. 39, No. 4. — P. 308-323. 3. Feng, Z. Do green buildings improve the financial performance of REITs?. / Z. Feng, T. Wang, W. Zhang // Journal of Real Estate Portfolio Management — 2022. — Vol. 28, No. 1. — P. 1-17.