ESG Risk, Political Ideology, and the Syndicated Lending Relationship

David Newton; Pietro  Perotti; Binru Zhao

doi:10.1108/jal-01-2025-0009

ESG Risk, Political Ideology, and the Syndicated Lending Relationship

David Newton
, Pietro Perotti
, Binru Zhao

The Albert Gubay Business School

University of Bath

Research output: Contribution to journal › Article › peer-review

Abstract

Purpose
This study examines how Environmental, Social and Governance (ESG) scores affect both the matching process between borrowers and lenders and the terms of syndicated loans.

Design/methodology/approach
The analysis concentrates on a comprehensive sample of syndicated loans to US firms. We estimate a set of linear models relating the borrower's ESG ratings to the bank's ESG ratings and to the loan conditions.

Findings
We find that firms with higher ESG scores are more likely to secure loans from banks that also have strong ESG ratings, especially in politically liberal states. Such firms also benefit from more favorable loan terms, including lower interest rates and a reduced number covenants.

Originality/value
This study highlights the dual role of ESG in influencing both borrower–lender matching and loan contracting outcomes. It also demonstrates that local political ideology amplifies the alignment between borrowers and lenders in terms of ESG, as well as the pricing of ESG ratings in loan contracting.

Original language	English
Pages (from-to)	1-23
Number of pages	23
Journal	Journal of Accounting Literature
Early online date	9 Feb 2026
DOIs	https://doi.org/10.1108/jal-01-2025-0009
Publication status	E-pub ahead of print - 9 Feb 2026

Access to Document

10.1108/jal-01-2025-0009

Embargoed Document

ESG_and_syndicated_loans_accepted_manuscript
Accepted author manuscript, 442 KB
Embargo ends: 9/07/27

Cite this

@article{b6123eaadbcd431b9fd5982d9876607b,

title = "ESG Risk, Political Ideology, and the Syndicated Lending Relationship",

abstract = "Purpose This study examines how Environmental, Social and Governance (ESG) scores affect both the matching process between borrowers and lenders and the terms of syndicated loans. Design/methodology/approach The analysis concentrates on a comprehensive sample of syndicated loans to US firms. We estimate a set of linear models relating the borrower's ESG ratings to the bank's ESG ratings and to the loan conditions. Findings We find that firms with higher ESG scores are more likely to secure loans from banks that also have strong ESG ratings, especially in politically liberal states. Such firms also benefit from more favorable loan terms, including lower interest rates and a reduced number covenants. Originality/value This study highlights the dual role of ESG in influencing both borrower–lender matching and loan contracting outcomes. It also demonstrates that local political ideology amplifies the alignment between borrowers and lenders in terms of ESG, as well as the pricing of ESG ratings in loan contracting.",

author = "David Newton and Pietro Perotti and Binru Zhao",

year = "2026",

month = feb,

day = "9",

doi = "10.1108/jal-01-2025-0009",

language = "English",

pages = "1--23",

journal = "Journal of Accounting Literature",

issn = "0737-4607",

publisher = "Emerald Publishing",

}

TY - JOUR

T1 - ESG Risk, Political Ideology, and the Syndicated Lending Relationship

AU - Newton, David

AU - Perotti, Pietro

AU - Zhao, Binru

PY - 2026/2/9

Y1 - 2026/2/9

N2 - Purpose This study examines how Environmental, Social and Governance (ESG) scores affect both the matching process between borrowers and lenders and the terms of syndicated loans. Design/methodology/approach The analysis concentrates on a comprehensive sample of syndicated loans to US firms. We estimate a set of linear models relating the borrower's ESG ratings to the bank's ESG ratings and to the loan conditions. Findings We find that firms with higher ESG scores are more likely to secure loans from banks that also have strong ESG ratings, especially in politically liberal states. Such firms also benefit from more favorable loan terms, including lower interest rates and a reduced number covenants. Originality/value This study highlights the dual role of ESG in influencing both borrower–lender matching and loan contracting outcomes. It also demonstrates that local political ideology amplifies the alignment between borrowers and lenders in terms of ESG, as well as the pricing of ESG ratings in loan contracting.

AB - Purpose This study examines how Environmental, Social and Governance (ESG) scores affect both the matching process between borrowers and lenders and the terms of syndicated loans. Design/methodology/approach The analysis concentrates on a comprehensive sample of syndicated loans to US firms. We estimate a set of linear models relating the borrower's ESG ratings to the bank's ESG ratings and to the loan conditions. Findings We find that firms with higher ESG scores are more likely to secure loans from banks that also have strong ESG ratings, especially in politically liberal states. Such firms also benefit from more favorable loan terms, including lower interest rates and a reduced number covenants. Originality/value This study highlights the dual role of ESG in influencing both borrower–lender matching and loan contracting outcomes. It also demonstrates that local political ideology amplifies the alignment between borrowers and lenders in terms of ESG, as well as the pricing of ESG ratings in loan contracting.

U2 - 10.1108/jal-01-2025-0009

DO - 10.1108/jal-01-2025-0009

M3 - Article

SN - 0737-4607

SP - 1

EP - 23

JO - Journal of Accounting Literature

JF - Journal of Accounting Literature

ER -

ESG Risk, Political Ideology, and the Syndicated Lending Relationship

Abstract

Access to Document

Embargoed Document

Fingerprint

Cite this