ESG lending

Sehoon Kim; Nitish Kumar; Jongsub Lee; Junho Oh

doi:10.1016/j.jfineco.2025.104150

ESG lending

Sehoon Kim¹; Nitish Kumar^2,3; Jongsub Lee⁴; Junho Oh⁵

¹ University of Florida · ² Rutgers, The State University of New Jersey · ³ Rutgers Sexual and Reproductive Health and Rights · ⁴ Seoul National University · ⁵ Hankuk University of Foreign Studies

Journal of Financial Economics 2025 open access

Firms increasingly borrow via sustainability-linked loans (SLLs), contractually tying spreads to their ESG performance. SLLs vary widely in transparency of disclosure regarding sustainability-related contract details and tend to be issued to borrowers with superior ESG profiles. While high-transparency SLL borrowers maintain this performance, low-transparency SLL borrowers exhibit significantly deteriorating ESG performance after issuance. Both high- and low-transparency borrowers pay substantial fees to obtain SLLs. The results are consistent with high-transparency borrowers using SLLs to “certify” their preexisting ESG commitments, but low-transparency borrowers “greenwashing” with empty SLL labels. Evidence on drawdowns, renegotiations, and stock market reactions further supports these interpretations.

DOI: 10.1016/j.jfineco.2025.104150
Volume: 173
Pages: 104150
Language: en
Export: BibTeX
Sources: openalex crossref