Title: Public and Private Interventions in Sustainable Lending: Evidence from Syndicated Lending Guideline Reform

Authors: Sudipta Basu (Temple University), Wei Wang (Temple University), Xiaoyu (Ross) Zhu (Sun Yat-sen University)

Abstract: We compare valuation changes of sustainability loans issued by U.S. and European borrowers before and after amendments to privately established sustainability contracting guidelines followed by both sets of borrowers. The relatively looser sustainability regulations in the U.S. provides a quasi-experiment to disentangle the effects of public and private interventions. We find that the guideline amendment improved both the expected and realized values of sustainability loans for U.S. borrowers relative to conventional loans, in terms of financial and sustainability performance. By contrast, sustainability loans issued by European borrowers were not affected by changes to the private guidelines, suggesting that private interventions have limited impact in the presence of strong public regulations. The differential amendment effect is driven mostly by U.S. firms without European subsidiaries, reflecting a regulatory spillover effect. The effect is weaker for U.S. firms operating in states with stricter climate regulations.