N°26-43: Bank Macroprudential Policies and Borrower ESG Performance

This paper examines whether foreign macroprudential policies affect U.S. firms’ ESG performance through cross-border bank lending. Combining cross-country policy measures with firm–bank credit exposures, we show that U.S. borrowers more exposed to non-U.S. banks facing capital or liquidity tightening experience significant ESG declines, whereas exposure to capital loosening improves ESG outcomes. A triple-difference design exploiting the ECB’s 2014 Asset Quality Review supports a causal interpretation and reveals no differential pre-trends. Mechanism tests show that foreign regulatory shocks transmit through banks’ credit-supply and portfolio-rebalancing decisions: affected banks reduce loan quantities, raise loan prices, and curtail credit to borrowers reliant on long-horizon ESG investment. The effects are stronger for borrowers with weaker credit protection, greater relationship dependence, and limited lender substitutability. The results are robust to alternative exposure measures and are reflected in emissions, waste, social controversies, and climate-related narratives. Our findings highlight an important real consequence of international bank regulation, showing that macroprudential policies can shape corporate sustainability outcomes through global credit markets.