Essays on Sustainability and Corporate Loan Contracts

This thesis investigates how environmental, social, and governance (ESG) considerations are integrated into syndicated corporate loan markets. While sustainable finance has gained prominence in equity and bond markets, the role of bank lending in ESG-aligned capital allocation remains comparatively underexplored. Syndicated loans-given their scale, flexibility, and relational contracting nature-offer a critical yet insufficiently examined channel through which banks influence corporate sustainability. This research aims to address four interrelated questions: (1) What is the current state of academic knowledge on Sustainable Corporate Loans (SCLs)? (2) How does borrower ESG performance affect loan pricing across institutional regions? (3) Do SCLs exhibit a greenium, and how does it vary across jurisdictions? (4) Do SCLs differ from conventional loans in terms of non-price contractual features?

Chapter 2 offers a systematic literature review (SLR) of SCLs-encompassing green loans and sustainability-linked loans (SLLs)-to synthesise the current state of academic research and propose a structured research agenda. Drawing on a Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA)-based protocol and bibliometric analysis of 102 peer-reviewed articles published in AJG Level 3 and above journals between 2009 and 2024, the chapter examines trends in publication volume, theoretical engagement, empirical methods, thematic clusters, and research gaps. The review reveals a sharp increase in publications since 2021, with a dominant geographical focus on China, the United States, and Europe. Theoretical foundations are relatively narrow, with agency and stakeholder theories being the most frequently applied, though more recent studies have begun incorporating signalling and institutional theories. Methodologically, the field is dominated by cross-sectional quantitative designs, with limited application of longitudinal, experimental, or mixed-method approaches. Four thematic clusters are identified: ESG and borrower financial outcomes; lender incentives and risk management; loan contract design; and macro-level ESG policy linkages. However, notable gaps remain concerning ESG-loan contracting, causal inference strategies, the disaggregation of ESG components, standardisation of ESG metrics, and deeper analyses of borrower-lender dynamics, particularly in emerging markets.

Chapter 3 investigates whether and how corporate ESG performance affects syndicated loan pricing, and whether these effects differ between Europe and the United States. Guided by agency, stakeholder, signalling, and institutional theory, the study addresses three questions: (i) Does ESG performance influence loan spreads? (ii) Do individual ESG pillars affect pricing differently? (iii) Are these effects moderated by institutional context? Using a panel dataset constructed from LPC DealScan and Refinitiv ESG scores (2010-2023), the analysis controls for borrower and year fixed effects. The results indicate that higher ESG scores are associated with significantly lower loan spreads, particularly for the environmental and governance dimensions. This association strengthens after the 2015 Paris Agreement, suggesting increasing ESG sensitivity among lenders. Importantly, the pricing effect is more pronounced in Europe, where institutional environments are more conducive to ESG-aligned financial intermediation.

Chapter 4 assesses whether SCLs are priced at a discount-termed a greenium-or instead command a risk premium, depending on the regional context. Using matched samples of SCLs and conventional loans from the same borrowers between 2016 and 2024, the study isolates the marginal effect of sustainability-linked status. The findings show that, on average, SCLs enjoy a 30-basis-point reduction in loan spreads, with the discount reaching 41 basis points in European markets. However, this greenium is not observed in the United States or other regions, suggesting that the pricing advantage of ESG-linked loans is conditional on institutional maturity, regulatory support, and lender expectations. These results imply that sustainable lending practices are not universally rewarded and that local financial ecosystems play a critical role in shaping ESG credit dynamics. The chapter concludes by recommending policy reforms to strengthen ESG disclosure and loan labelling standards.

Chapter 5 explores whether SCLs offer more borrower-favourable non-price contractual terms than conventional loans. Using global syndicated loan data from 2016 to 2024, the analysis focuses on five contractual features: loan amount, maturity, performance-based pricing, collateral requirements, and loan structuring format. The findings demonstrate that SCLs are significantly larger in size, longer in maturity, more likely to include ESG performance pricing mechanisms, and less likely to impose strict collateral or structural constraints. These associations are particularly strong for incentive-aligned terms-such as size, maturity, and pricing flexibility-and are robust across borrower fixed effects, propensity score matching, and regional sub-samples. In contrast, enforcement-oriented features such as collateral and term rigidity exhibit weaker or inconsistent patterns. These results support the view that lenders selectively adjust contractual terms in response to borrower ESG signals, consistent with financial contracting and reputational signalling theories.

The thesis adopts a multi-method approach. Chapter 2 applies a PRISMA-guided systematic literature review, while Chapters 3 to 5 use facility-level syndicated loan data merged with disaggregated ESG scores. Methodological tools include panel regressions with borrower fixed effects, regional sub-sampling, and Propensity Score Matching (PSM), ensuring greater robustness and causal identification. These choices address methodological gaps identified in the literature, including overreliance on simple OLS models, insufficient matching strategies, and a lack of facility-level granularity.

Collectively, the findings reveal that ESG considerations are not only priced into syndicated loans but also materially shape the structure and incentives embedded in loan agreements. The pricing benefits are concentrated in markets with strong ESG norms and regulatory frameworks, while contractual adjustments reflect both the trust-enhancing and risk-signalling dimensions of ESG performance. These results have significant implications for banks, corporate borrowers, and regulators.

The thesis makes several key contributions. Theoretically, it integrates agency, stakeholder, signalling, and institutional perspectives to explain ESG-loan dynamics. Empirically, it demonstrates the financial materiality of ESG factors in both price and non-price loan terms. Methodologically, it enhances the field through fixed effects designs, PSM, and ESG disaggregation. Finally, it informs policy by identifying structural conditions under which ESG-integrated lending is most effective, thus contributing to the development of more credible, efficient, and sustainable credit markets.