Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC
European Corporate Governance Institute – Finance Working Paper No. 817/2022
60 Pages Posted: 11 Jun 2021 Last revised: 14 Mar 2023
Date Written: June 11, 2021
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