The Impact of Environmental, Social, and Governance (ESG) on the Performance of Sunway REIT Malaysia

Chong, Jia Cheng (2025) The Impact of Environmental, Social, and Governance (ESG) on the Performance of Sunway REIT Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

Text RES#Chong Jia Cheng#22WVR15215 - JIA CHENG CHONG.pdf Restricted to Registered users only Download (1MB)

Abstract

The integration of Environmental, Social, and Governance (ESG) factors into business strategies has become increasingly critical, especially in sectors such as real estate, which are known for their significant environmental and social impacts. This research explores the influence of ESG factors on the financial and operational performance of Sunway Real Estate Investment Trust (REIT), one of Malaysia's leading REITs. With regulatory bodies like the Securities Commission Malaysia mandating sustainability reporting, REITs are under growing pressure to adopt ESG principles. However, the specific impact of ESG practices on REIT performance remains underexplored, particularly in the Malaysian context. This study aims to fill this gap by examining the relationship between ESG factors—namely environmental (energy consumption, water management, greenhouse gas emissions), social (community investment, workforce diversity), and governance (board diversity)—and key financial performance indicators, including Net Asset Value (NAV), Distribution Yield (DY), and Return on Equity (ROE). The research employs a quantitative approach, utilizing secondary data from Sunway REIT’s annual reports over the past five years. Descriptive statistics, Principal Component Analysis (PCA), and multiple regression analysis are applied to analyse the data and assess the significance of ESG factors on REIT performance. The results reveal that governance factors, particularly board diversity, have the most significant positive impact on Sunway REIT's financial performance, while environmental factors, such as energy consumption, show a more complex relationship, occasionally exhibiting a negative correlation with NAV. Social factors, including community investment, were found to contribute positively but not significantly to financial outcomes. Overall, Sunway REIT demonstrates strong financial stability, with minimal fluctuations in key performance indicators despite the increasing incorporation of ESG practices. The findings suggest that while ESG integration is crucial for long-term sustainability, its impact on financial performance varies across different dimensions. Governance appears to be the most influential factor, indicating that strong, transparent management practices are key to ensuring stable performance. This research contributes to the growing body of knowledge on ESG in the real estate sector and provides valuable insights for REIT investors, regulators, and policymakers aiming to promote sustainable investment strategies.