"The Economic Consequences of Firms’ Commitment to ESG Policies"
The largest U.S. banks have adopted, in a staggered manner, an environmental and social risk management framework called the Equator Principles. Utilizing a staggered difference-in-differences design, we document a significant increase in environmental protection provisions in the loan contracts for those borrowing from banks that have adopted the framework. Furthermore, we reveal a significant reduction in loan spreads for these borrowers. Importantly, we also provide direct evidence of the benefits of the firms’ commitment to this framework by showing a significant incremental reduction in loan spreads among borrowers who actively switch to banks that adopted the framework. Additionally, the cost of equity declines for firms borrowing from adopting banks. Lastly, we document an improvement in the environmental performance of these borrowers after the loan contract. Taken together, our findings are consistent with firms being able to reduce their cost of capital by opting to commit to environmental protection through loan contracts.
Attendance to this seminar is possible by invitation only. Please send an e-mail to email@example.com if your are interested in attending this seminar.