University of Florida finance faculty research among most read, according to Financial Times

Among business school research papers focused on sustainability, Sehoon Kim and Nitish Kumar’s paper on ESG lending is among the top 20 most-read papers.

GAINESVILLE, Fla. – Inquiring academic and business minds into the latest and greatest research are looking to the work of two University of Florida Warrington College of Business faculty members for impactful insights into finance-related sustainability topics.

Assistant Professors Sehoon Kim and Nitish Kumar’s paper focused on ESG lending is among the top 20 most-downloaded business school research papers on sustainability over the past three years, according to an analysis by the Social Science Research Network (SSRN) for the Financial Times.

“It is an incredible feeling to know that our work has captured the attention of prominent news outlets and is being recognized for its importance,” Kim said. “This provides an opportunity to reach a broader audience and potentially impact future discussions in this field, both among academics and practitioners. It is also humbling to be mentioned among other excellent studies written by prominent business scholars.”

Among the 50 most-downloaded papers on the list, ESG, or environmental, social and governance, topics were frequently cited in paper titles. ESG topics have become more popular in recent years due to a greater societal demand for more corporate social responsibility around the environment and social inequality, Kim explained. Correspondingly, governments and regulatory bodies around the world have begun mandating more disclosure of ESG performance, he added.

“Relatedly, some academics and practitioners argue that firms with better ESG profiles are subject to lower environmental and regulatory risks,” Kim said. “These developments have reshaped financial markets where investors are increasingly incorporating ESG factors into their investment decisions. Naturally, there is much demand for better understanding these developments across the business landscape and for clearer practical guidance on the nature and implications of ESG.”

 The 2023 paper, “ESG Lending” is co-authored with two former Business Gators, Seoul National University’s Jongsub Lee and Hankuk University of Foreign Studies’ Junho Oh (Ph.D. ’20). In the paper, Kim, Kumar and their co-authors investigate Sustainability-Linked Loans (SLLs), a rapidly growing form of ESG-contingent corporate financing where the interest rates on corporate bank loans are tied to how well the borrowing company performs on environmental or social key performance indicators.

Despite SLLs comprising over $300 billion in annual issuance globally, Kim and Kumar’s paper is the first to examine the consequences of this form of corporate borrowing and the incentives of players in the space. 

A key finding is that SLL contracts are not transparent, making it difficult to gauge whether an SLL can really incentivize good corporate ESG practices. The lack of SLL contract transparency has consequences, Kumar explained.

“Interestingly, the transparency of ESG-contingent contract details is related to how well borrowers perform on ESG issues after the loan is issued – suggesting that firms are strategically deciding when and how much to disclose to the general public­­,” Kumar said. “Consistent with greenwashing concerns where the SLL contract terms are not binding and then not disclosed to the public, borrowers tend to perform worse, not better, on various ESG performance metrics after obtaining low-disclosure SLLs.”

Through their work, the researchers shed light on how the vast global syndicated loan market has developed contractual mechanisms to address ESG-related concerns among borrowers and lenders, but the opacity of SLL contracts is concerning.

“While our research highlights the importance of such contracts, we also raise concerns about their transparency and effectiveness in facilitating real and positive improvements in corporate ESG policies,” Kumar said. “Given the increasing regulatory scrutiny and societal emphasis on corporate ESG performance by various stakeholders around the world, our findings hold important implications for global banking and sustainable corporate finance.”

The full paper is available for download on SSRN.