ESG Lending

57 Pages Posted: 11 Jun 2021 Last revised: 1 Jul 2021

See all articles by Sehoon Kim

Sehoon Kim

University of Florida - Department of Finance, Insurance and Real Estate

Nitish Kumar

University of Florida

Jongsub Lee

Seoul National University; University of Florida - Warrington College of Business Administration

Junho Oh

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: July 1, 2021

Abstract

The "ESG lending" market, where loan contract terms are contingent on borrower ESG performance (i.e., ESG-linked loans), or where loans are issued for specific green projects (i.e., Green loans), has grown exponentially from $6 billion in 2016 to $173 billion in 2019. Much of this growth is driven by ESG-linked loans which are widespread across various industries and well developed capital markets, especially in civil law countries. ESG-linked loans are issued in sizeable amounts by large and publicly listed borrowers, and are often structured through revolving credit facilities by large groups of syndicates led by reputable "ESG specialist" global banks, who keep tight relationships with borrowers. Green loans are smaller project finance vehicles, similar in format to green bonds, yet issued to mostly privately held borrowers. They do not tend to attract large cross-border syndicates. We find that ESG loans tend to be written by borrowers and lenders with superior ESG profiles ex-ante, and find no evidence that their ESG performances deteriorate ex-post after ESG loan issuance. Overall, our results indicate that borrowers capable of maintaining high ESG standards and lenders capable of coordinating and monitoring ESG loan contracts drive the emergence of ESG banking activities around the globe.

Keywords: ESG, ESG Loans, ESG Lending, Sustainable Finance, Green Finance, Bank Lending

JEL Classification: G21, G32, M14

Suggested Citation

Kim, Sehoon and Kumar, Nitish and Lee, Jongsub and Oh, Junho, ESG Lending (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3865147 or http://dx.doi.org/10.2139/ssrn.3865147

Sehoon Kim (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Nitish Kumar

University of Florida ( email )

Gainesville, FL 32611
United States

Jongsub Lee

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

University of Florida - Warrington College of Business Administration ( email )

Department of Finance Insurance & Real Estate
P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-273-4966 (Phone)
352-392-0301 (Fax)

Junho Oh

Hong Kong Polytechnic University - School of Accounting and Finance

Hung Hom
Kowloon
Hong Kong

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