Who Benefits from Sustainability-linked Loans?

We study the economic motivations driving sustainability-linked loans (SLLs), a quickly growing loan segment, where the contract terms depend on the borrower's ESG performance. Our analysis finds that SLLs do not offer advantageous loan terms nor result in improved borrowers' ESG performance. However, we observe that SLL lenders attract higher deposits after issuance, supporting lending growth. Further, we find no evidence that lenders offer SLL contracts predominantly to low-risk borrowers. With the lenders reaping the majority of benefits from such arrangements, these findings call into question the purported objectives of SLLs in promoting sustainable practices.