Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288248 
Year of Publication: 
2023
Citation: 
[Journal:] Financial Management [ISSN:] 1755-053X [Volume:] 52 [Issue:] 4 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2023 [Pages:] 643-675
Publisher: 
Wiley, Hoboken, NJ
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.
Subjects: 
ESG‐linked loans
sustainability KPIs
sustainability‐linked loans
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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