ESG transition incentives with loan guarantees

Wenyang Xu, Zhaojun Yang and Nanhui Zhu

Finance Research Letters, 2025, vol. 75, issue C

Abstract: This paper develops a model of ESG transition in a loan–guarantee framework. By incorporating tax subsidies with loan guarantees, the financial stress due to the transition is alleviated. We find that the ESG ongoing input makes the transition postponed such that ESG transition investment threshold first increases and then decreases with the tax subsidy rate. At a sufficiently low transition cost, a higher risk induces a lower firm value; if the cost exceeds a threshold, a higher risk conversely results in a higher firm value. Our model provides empirical implications, which are helpful for governments to design ESG-related incentive policies.

Keywords: ESG investing; ESG incentives; The timing of ESG transition; Loan guarantees; Tax subsidies (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001151

DOI: 10.1016/j.frl.2025.106850

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