Walking the Walk? Bank ESG Disclosures and Home Mortgage Lending

Fox School of Business Research Paper Forthcoming

Review of Accounting Studies Forthcoming

103 Pages Posted: 14 Apr 2021 Last revised: 17 May 2022

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Justin Vitanza

Temple University - Department of Finance

Wei Wang

Temple University - Department of Accounting

Xiaoyu (Ross) Zhu

Sun Yat-sen University (SYSU) - Lingnan (University) College

Date Written: May 13, 2022

Abstract

We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor localities—in number and dollar amount—than banks with low ESG ratings. This lending disparity happens at both the county and census tract level, worsens in disaster areas of severe hurricane strikes, is robust to alternative ESG ratings (including using only the social (S) component), and cannot be explained by banks’ differential deposit networks. We find no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. We report a complementary, not substitution, relation between high-ESG banks’ mortgage lending and their community development investments (like affordable housing projects) in poor localities. Loan-application-level analyses confirm that high-ESG banks are more likely than low-ESG banks to reject mortgage loans in poor neighborhoods. The evidence hints at social wash: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they arguably ought to perform. Community Reinvestment Act (CRA) examinations partially undo the social wash effect.

Keywords: ESG, financial institutions, mortgage lending disparity, non-financial disclosure, Community Reinvestment Act, green wash; social wash

JEL Classification: D82, G21, R31, M14

Suggested Citation

Basu, Sudipta and Vitanza, Justin and Wang, Wei and Zhu, Xiaoyu (Ross), Walking the Walk? Bank ESG Disclosures and Home Mortgage Lending (May 13, 2022). Fox School of Business Research Paper Forthcoming, Review of Accounting Studies Forthcoming, Available at SSRN: https://ssrn.com/abstract=3807685 or http://dx.doi.org/10.2139/ssrn.3807685

Sudipta Basu

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Justin Vitanza

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Wei Wang (Contact Author)

Temple University - Department of Accounting ( email )

Alter Hall 450
1801 Liacouras Walk
Philadelphia, PA 19122
United States

Xiaoyu (Ross) Zhu

Sun Yat-sen University (SYSU) - Lingnan (University) College ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China

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