ESG Lending

66 Pages Posted: 11 Jun 2021 Last revised: 29 Mar 2023

See all articles by Sehoon Kim

Sehoon Kim

University of Florida - Department of Finance, Insurance and Real Estate

Nitish Kumar

University of Florida

Jongsub Lee

Seoul National University; University of Florida - Warrington College of Business Administration

Junho Oh

Hankuk University of Foreign Studies

Date Written: June 11, 2021

Abstract

Sustainable lending has flourished amid widespread issuance of sustainability-linked loans (SLLs) with spreads contingent on borrower ESG performance. These loans are issued between reputable firms and banks with superior ESG profiles that face greater stakeholder scrutiny, mostly as revolving credit facilities through banking relationships. SLLs vary widely in the transparency of publicly available information on sustainability related contract details. Consistent with greenwashing concerns, borrower ESG scores deteriorate after the issuance of low-transparency SLLs. Stock markets exhibit vigilance against potential greenwashing, responding positively to issuance announcements only for high-transparency SLLs. Our findings highlight the importance of transparency in ESG-contingent financing.

Keywords: ESG, Bank Lending, Sustainability-Linked Loans (SLLs), Greenwashing, Sustainable Finance, Green Loans, ESG-Contingent Financing

JEL Classification: G21, G32, M14

Suggested Citation

Kim, Sehoon and Kumar, Nitish and Lee, Jongsub and Oh, Junho, ESG Lending (June 11, 2021). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, European Corporate Governance Institute – Finance Working Paper No. 817/2022, Available at SSRN: https://ssrn.com/abstract=3865147 or http://dx.doi.org/10.2139/ssrn.3865147

Sehoon Kim (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Nitish Kumar

University of Florida ( email )

Gainesville, FL 32611
United States

Jongsub Lee

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

University of Florida - Warrington College of Business Administration ( email )

Department of Finance Insurance & Real Estate
P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-273-4966 (Phone)
352-392-0301 (Fax)

Junho Oh

Hankuk University of Foreign Studies

270 Imun-dong Dongdaemun-gu
Seoul, 130-791
Korea, Republic of (South Korea)

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