ESG Lending

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: 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