Green Versus Sustainable Loans: The Impact on Firms' ESG Performance

European Financial Management  ·  2026

H. Özlem Dursun‐de Neef; Steven Ongena; Gergana Tsonkova;

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ABSTRACT This paper studies the development of a firm's Environmental, Social, and Governance (ESG) performance following the issuance of “green loans” earmarked for green projects versus “sustainable loans” benchmarked by ESG criteria.

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ABSTRACT

This paper studies the development of a firm's Environmental, Social, and Governance (ESG) performance following the issuance of “green loans” earmarked for green projects versus “sustainable loans” benchmarked by ESG criteria. Firms issuing green loans improve environmental performance, particularly by reducing emissions, but experience declines in social performance, suggesting a trade‐off between environmental and social objectives. In contrast, sustainable loans are associated with broader ESG improvements, enhancing environmental and governance outcomes without a comparable social decline. Overall, loan design shapes corporate sustainability behaviour: green loans generate targeted environmental gains, whereas sustainable loans foster more balanced and holistic ESG performance improvements.

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