Working Paper: CEPR ID: DP17430
Authors: Özlem Dursunde Neef; Steven Ongena; Gergana Tsonkova
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 humanrights, 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 Codes: G21; G32; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Green loans (H81) | Environmental emissions reduction score (Q52) |
| Green loans (H81) | Social performance score (P27) |
| Sustainable loans (G51) | Overall ESG score (Q56) |
| Sustainable loans (G51) | Environmental score (Q56) |
| Sustainable loans (G51) | Governance score (H11) |