Publications
Publications
- 2022
- HBS Working Paper Series
The Issuance and Design of Sustainability-linked Loans
By: Maria Loumioti and George Serafeim
Abstract
Sustainability-linked loans (i.e., syndicated loans for which pricing is linked to a sustainability performance indicator) have rapidly evolved into a significant private debt product. We find that sustainability-linked lending has been available mostly to borrowers with low environmental, social, and governance (ESG) risk profiles. We show that borrower’s ESG risk is associated with the use of aggregate (e.g., ESG score) rather than granular (e.g., carbon emissions) performance indicators and the monitoring by a reputable sustainability verifier. Further, ESG risk is unrelated to sustainability indicator materiality and target restrictiveness. Overall, we provide evidence consistent with the sustainability-linked lending market acting as a signaling mechanism of ESG credentials and being at the early stages of contract design sophistication.
Keywords
Sustainability; Sustainability Management; Credit Products; Loan Contracts; Loans; Corporate Finance; Credit Risk; Environment; ESG; ESG Ratings; Climate Change; Finance; Borrowing and Debt; Risk and Uncertainty; Credit
Citation
Loumioti, Maria, and George Serafeim. "The Issuance and Design of Sustainability-linked Loans." Harvard Business School Working Paper, No. 23-027, November 2022.