The study explores how changes in ESG ratings, triggered by a methodology shift, influence loan spreads in the secondary corporate loan market. It reveals that ESG downgrades lead to temporary increases in loan spreads, particularly for smaller and financially constrained firms. The findings highlight the growing importance of ESG factors in investment decisions, with firms exposed to carbon emissions or climate risks facing higher penalties. However, the effect diminishes over time and is attributed to short-term market reactions rather than fundamental changes in firm characteristics.