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Green versus sustainable loans: The impact on firms’ ESG performance

Author

Listed:
  • Özlem Dursun-de Neef

    (Goethe University Frankfurt)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Gergana Tsonkova

    (Goethe University Frankfurt)

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 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.

Suggested Citation

  • Özlem Dursun-de Neef & Steven Ongena & Gergana Tsonkova, 2022. "Green versus sustainable loans: The impact on firms’ ESG performance," Swiss Finance Institute Research Paper Series 22-42, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2242
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    Keywords

    Green Loans; Sustainability Linked Loans; Environmental; Social; and Governance (ESG) Performance; Sustainable Finance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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