Journal article

Authors list: Auzepy, A; Bannier, CE; Martin, F

Publication year: 2023

Pages: 643-675

Journal: Financial Management

Volume number: 52

Issue number: 4

ISSN: 0046-3892

eISSN: 1755-053X

Open access status: Hybrid

DOI Link: https://doi.org/10.1111/fima.12437

Publisher: Wiley

Abstract: 
This paper analyzes sustainability-linked loans (SLLs), a new category of debt instrument that incorporates environmental, social, and governance (ESG) considerations. Using a large sample of loans issued between 2017 and 2022, we assess the design of SLLs by evaluating their key performance indicators (KPIs) using a comprehensive quality score. Our findings suggest that SLLs only partially rely on KPIs that generate credible sustainability incentives. We document that SLL borrowers do not significantly improve their ESG performance post issuance and show that stock markets are rather indifferent to the issuance of SLLs by EU borrowers, while SLL issuance announcements by US borrowers are met with significantly negative abnormal returns by investors. These findings call into question the beneficial sustainability and signaling effects that borrowers may hope to achieve by issuing ESG-linked debt.

Harvard Citation style: Auzepy, A., Bannier, C. and Martin, F. (2023) Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review, Financial Management, 52(4), pp. 643-675. https://doi.org/10.1111/fima.12437

APA Citation style: Auzepy, A., Bannier, C., & Martin, F. (2023). Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review. Financial Management. 52(4), 643-675. https://doi.org/10.1111/fima.12437