DP17430 Green versus sustainable loans: The impact on firms' ESG performance
|Author(s):||Havva Özlem Dursun-de-Neef, Steven Ongena, Gergana Tsonkova|
|Publication Date:||July 2022|
|Keyword(s):||and Governance (ESG) Performance, Environmental, Green Loans, Social, Sustainability Linked Loans, Sustainable Finance|
|JEL(s):||G21, G32, M14|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=17430|
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.