Does it pay to be Green? The impact of equator principles on project loans

Gabriel J. Power and Djerry C. Tandja-M.

The European Journal of Finance, 2025, vol. 31, issue 5, 616-646

Abstract: Some financial institutions voluntarily adopt the Equator Principles, requiring them to monitor the environmental and social (ESG) impacts of projects they finance. We investigate the incidence of these costs on corporate borrowers, as well as evidence of benefits in the form of improved loan terms. Using detailed international loan data, we find that borrowers dealing with green banks derive several economic benefits including lower loan spreads. We argue that dealing with ‘green banks’ allows firms to signal their ESG commitment and can help them manage ex post ESG-related risk. The empirical approach also addresses endogeneity concerns. We document other benefits including greater lender participation and the support of Multilateral Development Banks. Our counterfactual analysis, however, shows that if regulatory changes were to encourage working with green banks, firms that only deal with them as a result of the policy would not obtain lower loan spreads.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2024.2419568 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:31:y:2025:i:5:p:616-646

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2024.2419568

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().