Sustainability-Linked Loans and Borrower Selection: A Matched Event-Time Study of ESG Performance and Credit Risk among European Listed Firms

Sammanfattning

While previous studies suggest that selection into sustainability-linked lending is largelyinfluenced by pre-issuance borrower characteristics, it remains ambiguous whethersustainability-linked loans (SLLs) reflect borrower selection and whether their incentivestructure is associated with changes in ESG performance and credit-risk characteristics.Therefore, this study uses a treatment group of 25 firms with public evidence of havingobtained an SLL, and a control group of 25 firms for which no public evidence of obtaining anSLL has been found. A logit model is used to examine how pre-issuance borrowercharacteristics are associated with the probability of becoming an SLL borrower, while twomatched panel event-time models are used to study how ESG performance and observablecredit-risk characteristics develop around issuance of the loan. The thesis finds no significantevidence that ESG performance or observable credit risk determines borrower selection amongSLL borrowers, which contrasts with previous research. While no differences in thedevelopment of ESG performance and observable credit-risk characteristics were foundbetween the groups, the environmental score of SLL borrowers showed stronger signs ofdevelopment than the aggregated ESG score around loan issuance.