Congratulations to Professor Franz Fuerst from the Department of Land Economy, who has co-authored a new article published in Journal of Cleaner Production, which looks at the impact of sustainable building practices on office rental contracts in India.

The article, entitled 'Are green and healthy building labels counterproductive in emerging markets? An examination of office rental contracts in India', was co-authored alongside Dr Anirban Banerjee and Dr Prashant Das from the Indian Institute of Management Ahmedabad.

The abstract reads as follows:

Financial prudence compels businesses to improve their Environmental, Social, and Governance (ESG) performance when the marginal benefits, pecuniary or non-pecuniary, exceed the marginal costs. For many firms, renting green offices is a feasible ESG activity which may increase their willingness to pay higher rents. Analyzing over 17,000 green rental contracts in India between 2010 and 2022, we find that rents in green-labeled assets and those with health certification command significant premiums between 4 and 21%. However, green rents increased much faster compared to their non-green counterparts, and the propensity to rent green varies significantly across industry segments. We further examine how the market for green offices evolved after a mandatory ESG Disclosure Requirement was enacted in India in 2021. We find that suppliers (landlords) benefited from the regulation by disproportionately increasing rental rates. Existing tenants and foreign firms ended up paying higher rental prices while most other firms, including the assumed target groups of the new policy, redirected their green commitment away from green buildings. Although the policy may yield more positive results in the longer run, a reduced propensity to rent green offices is the opposite of what the ESG Disclosure Requirement tried to achieve.

The full article can be read via the link below.