The Disconnect between Syndicated Lending Activities and ESG Determinants in Banks’ Executive Compensation

Using banks’ implementation of ESG metrics in variable executive compensation and data on syndicated lending, this paper provides first evidence that banks who implement ESG KPIs in variable executive compensation do not alter their lending activities towards brown or fossil companies. I additionally find, that banks which implement such incentive structures lend more to privately held brown firms and less to highly-emitting public firms. These findings question the effectiveness of ESG metrics in banks’ variable executive compensation. JEL classification numbers: G21, M12, M14, Q50. Keywords: ESG, banking, syndicated loans, corporate governance, executive compensation.