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Walking the walk? Bank ESG disclosures and home mortgage lending

Author

Listed:
  • Sudipta Basu

    (Temple University)

  • Justin Vitanza

    (Temple University)

  • Wei Wang

    (Temple University)

  • Xiaoyu Ross Zhu

    (Sun Yat-sen University)

Abstract

We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor localities—in number and dollar amount—than banks with low ESG ratings. This lending disparity happens at both the county and census tract level, worsens in disaster areas of severe hurricane strikes, is robust to alternative ESG ratings (including using only the social (S) component), and cannot be explained by banks’ differential deposit networks. We find no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. We report a complementary, not substitution, relation between high-ESG banks’ mortgage lending and their community development investments (like affordable housing projects) in poor localities. Loan-application-level analyses confirm that high-ESG banks are more likely than low-ESG banks to reject mortgage loans in poor neighborhoods. The evidence hints at social wash: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they arguably ought to perform. Community Reinvestment Act (CRA) examinations partially undo the social wash effect.

Suggested Citation

  • Sudipta Basu & Justin Vitanza & Wei Wang & Xiaoyu Ross Zhu, 2022. "Walking the walk? Bank ESG disclosures and home mortgage lending," Review of Accounting Studies, Springer, vol. 27(3), pages 779-821, September.
    • Handle: RePEc:spr:reaccs:v:27:y:2022:i:3:d:10.1007_s11142-022-09691-3
    DOI: 10.1007/s11142-022-09691-3
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    References listed on IDEAS

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    Cited by:

    1. Liu, Suyi & Jin, Justin & Nainar, Khalid, 2023. "Does ESG performance reduce banks’ nonperforming loans?," Finance Research Letters, Elsevier, vol. 55(PA).
    2. Daniel Garrett & Ivan T. Ivanov, 2023. "Gas Guns and Governments: Financial Costs of Anti-ESG Policies," Working Paper Series WP 2023-07, Federal Reserve Bank of Chicago.
    3. Fiordelisi, Franco & Ricci, Ornella & Santilli, Gianluca, 2023. "Environmental engagement and stock price crash risk: Evidence from the European banking industry," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Martin-Flores, Jose M., 2024. "Is bank misconduct related to social capital? Evidence from U.S. banks," Journal of Banking & Finance, Elsevier, vol. 167(C).
    5. Caterina Lucarelli & Sabrina Severini, 2024. "Anatomy of the chimera: Environmental, Social, and Governance ratings beyond the myth," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 4198-4217, July.

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    More about this item

    Keywords

    Financial institutions; Mortgage lending disparity; Non-financial disclosure; Community Reinvestment Act; Green wash; Social wash.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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