Urban agglomeration and the relationship between environmental performance and profitability: evidence from global REITs

This study examines how headquarters location in major urban agglomerations weakens the relationship between environmental performance (lower carbon emission intensity) and financial performance (higher profitability) in real estate investment trusts (REITs). Analyzing 375 REITs across 21 economies from 2017 to 2023, we identify a negative, non-linear relationship between carbon emission intensity and profitability. However, this relationship is significantly weaker for REITs headquartered in major urban agglomerations. While environmental performance generally enhances profitability, its impact is diminished in urban agglomerations due to three key mechanisms: weakened environmental differentiation, higher cost pressures, and systemic environmental challenges. In contrast, we find that REITs outside urban agglomerations exhibit a stronger negative relationship between carbon emission intensity and profitability, particularly driven by Scope 2 (indirect) emissions. By highlighting the geographical determinants of corporate sustainability, this study contributes to the discourse on spatial governance in urban agglomerations, emphasizing the need for location-specific sustainability strategies and policies.