Walking the walk? Bank ESG disclosures and home mortgage lending

Sudipta Basu, Justin Vitanza (), Wei Wang () and Xiaoyu Ross Zhu ()
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Justin Vitanza: Temple University
Wei Wang: Temple University
Xiaoyu Ross Zhu: Sun Yat-sen University

Review of Accounting Studies, 2022, vol. 27, issue 3, No 1, 779-821

Abstract: Abstract We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor localities—in number and dollar amount—than banks with low ESG ratings. This lending disparity happens at both the county and census tract level, worsens in disaster areas of severe hurricane strikes, is robust to alternative ESG ratings (including using only the social (S) component), and cannot be explained by banks’ differential deposit networks. We find no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. We report a complementary, not substitution, relation between high-ESG banks’ mortgage lending and their community development investments (like affordable housing projects) in poor localities. Loan-application-level analyses confirm that high-ESG banks are more likely than low-ESG banks to reject mortgage loans in poor neighborhoods. The evidence hints at social wash: banks deploy prosocial rhetoric and symbolic actions while not lending much in disadvantaged communities, the social function they arguably ought to perform. Community Reinvestment Act (CRA) examinations partially undo the social wash effect.

Keywords: Financial institutions; Mortgage lending disparity; Non-financial disclosure; Community Reinvestment Act; Green wash; Social wash. (search for similar items in EconPapers)
JEL-codes: D82 G21 M14 R31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11142-022-09691-3

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