The EU Taxonomy and the Syndicated Loan Market

48 Pages Posted: 4 Apr 2022

See all articles by Zacharias Sautner

Zacharias Sautner

Frankfurt School of Finance & Management; European Corporate Governance Institute (ECGI)

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Rui Zhong

The University of Western Australia - UWA Business School

Xiaoyan Zhou

University of Oxford, Smith School of Enterprise and the Environment

Date Written: March 16, 2022

Abstract

We provide first empirical evidence on the financial market effects of the EU Taxonomy for Sustainable Activities. Using international data from the syndicated loan market, we demonstrate that – in the past – firms with larger Taxonomy-aligned revenue shares paid lower interest rates. Business revenue is Taxonomy-aligned if it originates from “transitional activities” that substantially contribute to climate change mitigation. A one-standard-deviation increase in firm revenue from transitional activities is associated with six basis points lower loan spreads. Effects are more pronounced for firms in countries with greater climate risk exposure and more stringent environmental policies, and when lending institutions have green preferences. Our results indicate that financial markets already price in some of the intended effects of the EU Taxonomy.

Keywords: EU Taxonomy; Climate resilience; Syndicated loan spreads; Climate risk

JEL Classification: F34; G12; G32; M14; Q54

Suggested Citation

Sautner, Zacharias and Yu, Jing and Zhong, Rui and Zhou, Xiaoyan, The EU Taxonomy and the Syndicated Loan Market (March 16, 2022). Available at SSRN: https://ssrn.com/abstract=4058961 or http://dx.doi.org/10.2139/ssrn.4058961

Zacharias Sautner

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jing Yu (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Rui Zhong

The University of Western Australia - UWA Business School ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Xiaoyan Zhou

University of Oxford, Smith School of Enterprise and the Environment ( email )

South Parks Road
Oxford, Oxfordshire OX1 3QY
United Kingdom
0044(0)1865614961 (Phone)
7921513972 (Fax)

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