Are Sustainability-Linked Loans Designed to Effectively Incentivize Corporate Sustainability? A Framework for Review

43 Pages Posted: 11 Dec 2022 Last revised: 21 Dec 2022

See all articles by Alix Auzepy

Alix Auzepy

University of Giessen

Christina E. Bannier

Justus-Liebig-University Giessen

Fabio Martin

University of Giessen - Department of Finance

Date Written: December 5, 2022

Abstract

The issuance of sustainability-linked loans (SLLs) has grown exponentially in recent years. Using a scoring methodology, we examine the underlying key performance indicators of a large sample of SLLs and analyze whether their design creates effective incentives for improving corporate sustainability performance. We demonstrate that the majority of loans fail to meet key requirements that would make them credible instruments for generating effective sustainability incentives. These findings call into question the actual sustainability impact that may be achieved through the issuance of ESG-linked debt.

Keywords: Sustainability-Linked Loans, sustainability KPIs, ESG lending, ESG loans, sustainable finance

JEL Classification: G21, G32, M14

Suggested Citation

Auzepy, Alix and Bannier, Christina E. and Martin, Fabio, Are Sustainability-Linked Loans Designed to Effectively Incentivize Corporate Sustainability? A Framework for Review (December 5, 2022). Available at SSRN: https://ssrn.com/abstract=4293774 or http://dx.doi.org/10.2139/ssrn.4293774

Alix Auzepy

University of Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

Christina E. Bannier

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gießen, 35394
Germany
+49 641 99 22551 (Phone)

Fabio Martin (Contact Author)

University of Giessen - Department of Finance ( email )

Giessen
Germany

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