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Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review

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  • Auzepy, Alix
  • Bannier, Christina E.
  • Martin, Fabio

Abstract

The issuance of sustainability-linked loans (SLLs) has grown exponentially in recent years. Using a scoring methodology, we examine the underlying key performance indicators of a large sample of SLLs and analyze whether their design creates effective incentives for improving corporate sustainability performance. We demonstrate that the majority of loans fails to meet key requirements that would make them credible instruments for generating effective sustainability incentives. These findings call into question the actual sustainability impact that may be achieved through the issuance of ESG-linked debt.

Suggested Citation

  • Auzepy, Alix & Bannier, Christina E. & Martin, Fabio, 2023. "Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review," CFS Working Paper Series 688, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:688
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    References listed on IDEAS

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    Cited by:

    1. Noor Faiza M. Ja'afar & Fatin Nadhrah Mohd Khir & Fatmawati Jusoh & Maslinawati Mohamad, 2024. "Sustainability-Linked Loans for EV Manufacturers: An Emerging Trend in Banking," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(11), pages 1549-1556, November.
    2. Viktoriia Myronchuk & Oleksandr Yatsenko & Dmytro Riznyk & Olena Hurina & Andrii Frolov, 2024. "Financing Sustainable Development: Analysis of Modern Approaches and Practices in the Context of Financial and Credit Activities," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 317-329, September.

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    More about this item

    Keywords

    Sustainability-Linked Loans; sustainability KPIs; ESG lending; ESG loans; 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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