Prior Lending Relationships and the Effectiveness of Commitments in Sustainability-Linked Loans

Gamze Danisman (), Jaideep Oberoi (), Victor Osei () and Amine Tarazi ()
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Gamze Danisman: Istanbul Bilgi University
Jaideep Oberoi: SOAS - School of Oriental and African Studies - University of London [London]
Victor Osei: LAPE - Laboratoire d'Analyse et de Prospective Economiques - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Amine Tarazi: LAPE - Laboratoire d'Analyse et de Prospective Economiques - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: Using a global sample of sustainability-linked loans, we examine how prior relationships between borrowers and lead arranging banks-acting as sustainability agents-influence the structure of key performance indicators (KPIs) of these loans. We find that existing relationships are associated with fewer yet broader KPIs spanning multiple ESG dimensions.Moreover, when such relationships are present, greater KPI intensity leads to improved postissuance ESG performance, particularly in the environmental domain. Our results are robust to a variety of checks, including instrumental variable and propensity score matching techniques, highlighting the significance of relationship lending in shaping effective sustainability incentives.

Keywords: JEL classification: G20; G21; Q56 Bank lending Sustainability-linked loan ESG score Performance-based lending Relationship lending JEL classification: G20; Q56 Bank lending Sustainability-linked loan ESG score Performance-based lending Relationship lending; Q56 Bank lending; Sustainability-linked loan; ESG score; Performance-based lending; Relationship lending JEL classification: G20; Relationship lending (search for similar items in EconPapers)
Date: 2025-05-23
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