67 Pages Posted: 11 Jun 2021 Last revised: 25 Sep 2022
Date Written: September 11, 2022
The sustainable loan market has flourished amid the widespread issuance of ESG-linked loans with spreads contingent on borrower ESG performance. These loans are issued mostly as revolving credit facilities to large firms with superior ESG profiles by global relationship banks. ESG-linked loans vary widely in the quality of their contractual disclosures, and borrower ESG scores deteriorate after the issuance of low disclosure quality ESG-linked loans. Stock markets respond positively to the announcement of ESG-linked loan issuance only if disclosure quality is high, indicating the importance of transparent disclosure of ESG contingencies in the sustainable lending market.
Keywords: ESG, ESG Loans, ESG Lending, Sustainability-Linked Loans, Sustainable Finance, Bank Lending
JEL Classification: G21, G32, M14
Suggested Citation: Suggested Citation