The Role of CSR Report Assurance and ESG Rating in Bank Manager's Judgement on ESG Lending Decisions

Abstract

The increasing number of ESG-linked financial instruments demonstrates the need for reliable information on companies' ESG performance, which is a challenge for users. Debates surround the effects of reliability-enhancing instruments like corporate social responsibility (CSR) report assurance and environmental, social, and governance (ESG) rating services on decisions related to ESG-linked financial instruments. Using experimental evidence from 156 bank managers, we show that assurance positively impacts ESG-linked credit lending decisions, with an additional positive impact when a neutral ESG rating is present in conjunction. When ESG performance and ESG rating improve, reasonable assurance can further amplify this positive effect. Additionally, our research indicates that the implementation of a positive ESG rating positively influences ESG-linked credit lending decisions, irrespective of any assurance factors. These findings have various implications, as they draw attention to the decision-making relevance of CSR report assurance and ESG ratings, as well as the understanding of assurance levels.