ESG Shifts in Lending and the Cost of Bank Loans (2024)

See all articles by David (Dongheon) Shin

David (Dongheon) Shin

University of Oklahoma - Michael F. Price College of Business

Abstract

Responding to increasing stakeholder pressure to incorporate ESG considerations, low ESG banks attempt to improve their ESG reputation by offering low loan spreads to high ESG borrowers to break the typical assortative lender-borrower ESG matching. Moreover, I find that borrowers enhance their ESG performance while seeking a loan (from low ESG banks), which then partially reverts afterward. Lastly, I show that regulatory pressure plays a significant role in pushing low ESG banks to increase ESG considerations. The results show how regulatory pressure, existing bank ESG credentials, and borrower ESG profiles interact to affect loan pricing and bank-borrower matching.

Shin, David (Dongheon), ESG Shifts in Lending and the Cost of Bank Loans (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3740710 or http://dx.doi.org/10.2139/ssrn.3740710