Walking the Walk? Bank ESG Disclosures and Home Mortgage Lending
73 Pages Posted: 14 Apr 2021 Last revised: 3 Jun 2021
Date Written: May 19, 2021
We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor neighborhoods—in quantity and dollar amount—than banks with low ESG ratings. This lending disparity is observed at both the county and census tract level and worsens in disaster areas of severe hurricane strikes. Additional tests indicate no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. The evidence supports a social wash effect: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they 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, social wash
JEL Classification: D82, G21, R31, M14
Suggested Citation: Suggested Citation