This paper examines the impact of having an Environmental, Social, and Governance (ESG) rating on a firm’s debt structure, i.e. how firms change their leverage ratios and debt components when becoming ESG rated. Targeted market and book leverage ratios are reduced when firms become ESG rated....

This paper examines the impact of having an Environmental, Social, and Governance (ESG) rating on a firm’s debt structure. We find that optimal (market and book) leverage ratios and information asymmetry are reduced when firms become ESG rated. More importantly, ESG rated firms redistribute...