Impact of banks’ ESG disclosure assurance on borrowers’ ESG performance: Evidence from China

Abstract

This study examines the impact of banks’ environmental, social, and governance (ESG) disclosure assurance (BEDA) on borrowing enterprises’ ESG performance to investigate China’s bank-enterprise loan relationships. Using manually collected bank loan relationship data and financial data of Chinese listed companies from 2010 to 2021, our findings reveal that BEDA significantly enhances borrowers’ ESG performance. Moreover, this effect is more pronounced when banks have a higher information demand, better internal controls, and share auditors with borrowers; when borrowers operate in environmentally sensitive industries, and in the period following the Paris Agreement signing. Among the individual ESG subcategories, the impact of BEDA on borrowers’ ESG performance is primarily reflected in environmental (E) and social (S) considerations. Finally, we do not find that BEDA significantly suppresses banks’ greenwashing. These findings indicate that BEDA has an informational or advisory influence on banks’ ESG governance rather than a supervisory role at this stage of sustainability reporting development. This study suggests that policymakers should guide BEDA’s evolution from a passive information tool to a proactive governance tool, facilitating enterprises in achieving substantive ESG transformations while reducing systemic greenwashing risks.