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ESG transition incentives with loan guarantees

Author

Listed:
  • Xu, Wenyang
  • Yang, Zhaojun
  • Zhu, Nanhui

Abstract

This paper develops a model of ESG transition in a loan–guarantee framework. By incorporating tax subsidies with loan guarantees, the financial stress due to the transition is alleviated. We find that the ESG ongoing input makes the transition postponed such that ESG transition investment threshold first increases and then decreases with the tax subsidy rate. At a sufficiently low transition cost, a higher risk induces a lower firm value; if the cost exceeds a threshold, a higher risk conversely results in a higher firm value. Our model provides empirical implications, which are helpful for governments to design ESG-related incentive policies.

Suggested Citation

  • Xu, Wenyang & Yang, Zhaojun & Zhu, Nanhui, 2025. "ESG transition incentives with loan guarantees," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001151
    DOI: 10.1016/j.frl.2025.106850
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