1.Introduction

In recent years, as ESG indicators have gradually become an important factor in evaluating the performance of non-financial aspects of companies, the banking industry has also begun to consider whether to lend before incorporating ESG indicators into assessment factors. ESG indicators examine a company's non-financial performance in three dimensions.

(1)Environmental:

Environmental criteria assess a company's commitment to environmental protection, which encompasses aspects such as managing climate risks, striving for carbon emissions reduction, and addressing the impacts of climate change.

(2)Social:

Social criteria assess how a company maintains relationships with its employees, suppliers, customers, and the communities in which it conducts its operations.

(3)Governance:

In the realm of governance, topics such as management, audits, executive compensation, shareholder rights, and the structure of the board are all actively discussed and addressed [1]. ESG-related dimension criteria topics are in Table 1 [2].

Table 1: ESG-related dimension criteria topics

ESG helps enterprises to manage and control non-financial risks to get more profit and social reputation. ESG performance reflects the company's sustainable profitability. Previous studies and surveys have shown that the research results on ESG are unclear, and the current global financial system fails to reflect the correlation between ESG indicators and corporate credit. However, there is much controversy over whether ESG indicators affect corporate bank loans. Most economists and businesspeople believe that ESG factors will reduce the cost of equity and financing. ESG indicators can not only examine the company's financial indicators but also analyze the company's non-financial indicators [3]. By combining the company's financial statements and ESG reports, corporate risks can be discovered, commercial fraud can be reduced, and banks can have more confidence in corporate investment [4]. However, even though the financial and banking industries are increasingly interested in ESG indicators and the topic of ESG is becoming increasingly popular, ESG indicator factors have not been clearly included in the financial and banking industries' assessment of a company's investment risk. The relevance of non-financial elements within ESG measurements has surged in recent years, prompting various financial journals in the media to shift their attention towards matters pertaining to environmental, social, and governance advancements. Certain news sources have highlighted the perspective of how adverse information related to the aforementioned areas can influence a company's financial well-being. This includes the potential loss of key clients, decreased business operations due to environmental risks, and adverse effects on the company's financial health, among other factors. The second part of the following article is a literature review, which involves reading and analyzing previous research and literature summaries and putting forward your own hypotheses. The third part is the verification of your own hypotheses and discussing new research findings through regression analysis. The last part summarizes and analyses the limitations of current research and makes an expectation for the future development of the ESG industry.

2.Literature Review

Because of the outbreak of the epidemic in 2020 and more and more companies experiencing thunderstorms in recent years, some loan companies have faced huge fines or even closures due to environmental and social problems. Let the banking industry and entrepreneurs pay more and more attention to the importance of ESG indicators in judging a company's risks. According to the information available in the Wind database, as more and more companies in my country are listed on the A-share market, the overall amount of ESG report disclosure is also increasing year by year. This unequivocally demonstrates that listed companies in China are increasingly prioritizing ESG considerations. The impact of indicators on enterprises. From an industry perspective, the pharmaceutical industry will publish the largest number of ESG reports in 2021, followed by the automotive industry. As mentioned above, due to the outbreak of the epidemic in 2020, many pharmaceutical companies have developed very well and gained more benefits. At the same time, companies also believe that they can improve their non-financial performance to show their sustainability. reliability. However, compared with H shares (52.2%) and even Western countries such as the United Kingdom and the United States, the report disclosure rate of domestic A-share companies still has a lot of room for improvement. It is also because my country’s involvement in ESG indicators (BYD’s literature) is relatively late compared to Western countries, and we still have a lot of room for improvement.

In recent years, more and more financial scientists and business managers have begun to study whether corporate ESG will affect bank loans to companies. Although ESG indicators have not yet been officially included in banks' credit rating factors for enterprises when lending, as ESG is paid more and more attention, banks will also consider relevant ESG factors as auxiliary factors to assess corporate risks. Generally, good ESG performance leads to higher credit ratings (ESG and credit) [5]. Conventional bank credit assessments typically consider the financial position of the company and fundamental qualitative data to gauge the creditworthiness of the borrower and anticipate the likelihood of the company defaulting [6]. However, some of them have begun implementing social ratings and sustainable credit score evaluations. At the same time, Zeidan et al. raise questions about whether future sustainability and the enduring effects of social responsibility initiatives have an impact on the likelihood of default. Ge and Lui highlighted that "greater CSR intensity scores are linked to narrower yield spreads in the case of new corporate bond offerings." Comparable results were discovered in a separate study conducted by Cooper and Uzur , in which they argued that corporate social responsibility commitments demonstrate an inverse relationship with the cost of debt associated with bank loans [7]. The study conducted by Ge and Lui demonstrates an inverse correlation between the CSR intensity score and the yield spread of new corporate bonds. This suggests that higher CSR intensity scores are linked to narrower yield spreads in these bonds. They contend that greater corporate social responsibility policies can lower debt costs.

At the same time, some scholars believe that ESG has a negative impact on corporate bank loans. Menz found that companies that strengthen and clarify ESG goals in the strategic decision-making process have higher risk premiums [8]. Research conducted by Goss and Roberts indicates that bank lenders do not reflect the adoption of corporate social responsibility (CSR) practices in their loan spreads.[9] Interestingly, their initial analysis discovered that ESG (Environmental, Social, and Governance) measures do not significantly impact company value and do not lead to additional financial gains. Olitzky et al. presented the same argument. ESG measurements are not significant to investors, according to Revelli and Revelli and Viviani, nor are they taken into consideration while designing ESG measures. There are more and more related literature studies on ESG and bank loans. Most of the initial studies believe that ESG is not related to corporate bank loans. As society continues to progress and the effects of the pandemic become more apparent, a growing body of research is highlighting a substantial positive link between corporate ESG performance and bank credit evaluations. Nonetheless, previous studies in the literature often focus exclusively on either the Chinese financial market or Western economic markets, with limited attention given to combining insights from both Chinese and Western financial markets. The economic and market situations are combined and analyzed together, and we think about what aspects of the Chinese economic market that have only recently begun to study the field of ESG still need to learn from the improvement of the Western economic market. Next, I will conduct research on green credit policies from the Chinese and Western governments and think about the differences between the two.

3.Analysis

In recent years, extreme climate events have occurred frequently, and climate risks have further intensified. Countries all over the world have developed their own green financial systems, nurtured green financial markets, and fostered international collaboration to adapt to the changing living environment and achieve sustainable social and environmental development.

According to the "Global Green Finance Development Report (2022)" and "China Local Green Finance Development Report (2022)" released by the Green Finance International Research Institute of the Central University of Finance and Economics, the top ten countries in the global green finance development index are the United Kingdom, France, Germany, China, Sweden, Japan, Netherlands, Denmark, United States and Spain. Countries with relatively developed economies and relatively complete financial market foundations have better green finance development. China has relied on policy efforts in recent years and the efforts of market participants to rank fourth in the world. According to the total score of the Green Finance Development Index and the three separate scores of 55 countries in the world provided by the "Global Green Finance Development Report (2022)", although North American developed countries represented by the United States and Canada rank among the top in overall scores, they It did not score high on policy and strategy. This not only reflects the differences in the intensity of policies to promote green finance development among developed countries but also reflects the differences between market-led green finance development models and policy-driven green finance development models. EU countries generally have higher scores in terms of policies and strategies. Only policies and laws enforced by EU countries will be considered as scored policies for all EU countries. This means that some recommended policies at the EU level that do not have mandatory implementation requirements are not counted. The EU will impose carbon tariffs on some high carbon imported goods from 2023. In March 2022, the proposal for the “Carbon Border Adjustment Mechanism” regulation was adopted by the European Commission. The Russian-Ukrainian conflict in 2022 will be short of energy. Controversial projects included in the sustainable finance catalog [9]. In the coming years, it is expected that geopolitical confrontations and conflicts between countries and regions may pose constraints on the potential for dialogue and collaboration in the realm of green finance [10].

On July 7, 2023, the Jiangsu Provincial Department of Ecology and Environment and the Department of Finance issued the "Notice on Organizing the Application for Green Bond Interest Subsidies and Green Guarantee Awards and Subsidy Funds for 2023." On July 4, 2023, the Shaoxing Municipal People’s Government released the “Implementation Plan for the Construction of Shaoxing’s “Lucid Waters and Lush Mountains Are Gold and Silver” Practice and Innovation Base (2023-2025). Financial institutions are urged to develop specialized credit products that distinguish between various sectors, exercise caution in extending credit to "high-carbon and low-efficiency" industries and prioritize addressing the financing requirements of green and low-carbon sectors. In Chapter 4 - Investment and Financing Process Management of the "Green Finance Guidelines for the Banking and Insurance Sector" issued by the China Banking and Insurance Regulatory Commission, all clauses emphasize the need to conduct detailed due diligence on the lending companies when conducting green credit, including Investigate a variety of ESG aspects of your business. According to the above summary, in developed countries, the display of policies is not as comprehensive as in developing countries. Part of the reason is that developed countries no longer need more policy support to implement green finance in the economic market. Nonetheless, owing to various constraints in developing countries, there is a pressing need for the government to introduce additional policies aimed at fostering the growth of green finance. According to data provided by the People's Bank of China shown by the figure 1, the total balance of green loans in both domestic and foreign currencies in our country reached 22.03 trillion yuan at the end of 2022. This represented a significant year-on-year increase of 38.5%, surpassing the growth rate of other loan types by a substantial margin, with a difference of 28.1 percentage points. As illustrated in the chart below, the foreign currency green loan balance in China has exhibited a consistent upward trajectory from 2018 to 2022, spanning a five-year period. From 2021 to 2022, the green loan balance has increased by leaps and bounds, and the country has paid more and more attention to green credit [11]. The following Table2 summarizes the national policies related to ESG that exist in China.

Figure 1: China Green Foreign Currency Loan Balance

Table 2: National policies related to ESG that exist in China

4.Conclusion

In summary, this study provides additional evidence on whether ESG affects bank lending to businesses, the views of governments around the world on green finance policies and attitudes, and changes in green credit balances in the banking industry. ESG performance has a significant influence on banks' lending decisions to companies, with a company's ESG performance quality being directly linked to the amount of bank loans it can secure. In the last two years, an increasing frequency of natural disasters, the consequences of climate change, and the occurrence of epidemics have posed numerous environmental and climate-related challenges for a multitude of companies. Especially in the past two years, governments around the world have successively issued various policies on carbon reduction, energy conservation, carbon neutrality, and carbon peaking. Corporate ESG indicators have indeed played a crucial role in evaluating the non-financial performance of companies. The influence of non-financial performance on overall profitability is steadily growing. Although the banking industry does not have clear regulations and determination rules indicating that ESG will be included in a company's credit assessment score, the banking industry has also successively separated various aspects of corporate ESG performance for observation. And will be included in credit assessment to a certain extent. Finally, there are several important limitations that need to be considered. This study primarily demonstrates that ESG factors influence banks' lending decisions to companies, drawing upon the findings of this research and various data. However, there is a notable absence of specific studies regarding the direct impact of ESG performance on banks themselves. There is no complete data to support research on the specific impact of corporate lending. In the future, as global research on environmental protection and sustainable green development has protected the earth's ecological environment and prevented the earth from further aggravating global warming, the ESG topic will surely become the hottest topic, and future research in this field will also be Aggravated. There is still a lot of room for exploration in research on ESG and green finance-related fields.