Download This PaperGreen Versus Sustainable Loans: The Impact on Firms’ ESG Performance
Swiss Finance Institute Research Paper No. 22-42
Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022
50 Pages Posted: 24 May 2022 Last revised: 4 Apr 2023
Date Written: March 31, 2023
Abstract
This paper studies the development of a firm’s Environmental, Social, and Governance (ESG) performance following the issuance of “green loans” earmarked for green projects versus “sustainable loans” to firms bench-marked by ESG criteria. Firms issuing green loans appear to be effective in shrinking their environmental emissions; however, they weaken in social performance indicated by a decrease in their human rights, community, and product responsibility scores. This implies that they prioritize their environmental goals, yet neglect their commitment towards their clients and society. Sustainable loans, on the other hand, we find to incentivize firms to improve their ESG performance by increasing their environmental and governance scores. Thus, the issuance of a sustainable loan surely precedes (and may consequentially signal) subsequent improvements in a firm’s overall ESG performance.
Keywords: Green Loans; Sustainability Linked Loans; Environmental, Social, and Governance (ESG) Performance; Sustainable Finance
JEL Classification: G21, G32, M14
Suggested Citation: Suggested Citation
Swiss Finance Institute
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Switzerland