Environment, social and governance (ESG) and bank loan interest rates

The trends to advocate environment, social and governance (ESG) practices are essential to the Sustainable Development Goals (SDGs) proposed by the United Nations (UN). Financial institutions pay their attention on green finance by issuing green debt, investing in firm stocks with high involvement in ESGs and lending to the firms of good practice on ESG. However, it needs to be verified whether the commercial banks price their corporate loans according to the borrowers' ESG performance. The paper uses 158 firms listed in Taiwan Stock Exchange as our sample from 2008 to 2019 and investigates whether the long-term loan interests are associated with the ESG scores. We collect the data of ESG scores from Refinitiv database and the data of long-term loan interests from Taiwan Economic Journal. The empirical results indicate that the aggregate ESG, individual environmental, social and governance performance could reduce the cost of bank loans. The higher the borrowing firms' ESG performance, the lower the loan interest rates. The results imply that the practice of ESG facilitates firms' creditability. However, as we take family features into account, the moderating effect from the family group weakens the positive effect of ESG performance on loan interest rates. Our results are robust as taking endogeneity into concerns.