We analyze how borrowers’ capital structure affects their incentives to integrate ESG. Borrowers may pursue socially valuable but financially underperforming projects to reduce expected payments to outside investors. These financial gains are amplified when the payoffs of investor-held securities are highly sensitive to project profitability. However, investor competition endogenously reduces contract sensitivity, undermining ESG objectives. Financially motivated borrowers prefer debt, a possible explanation for the growing trend of debt in green financing. Under asymmetric information, ESG-oriented borrowers can credibly signal their type by issuing equity when some investors are non-consequentialists, who can willingly take monetary losses for direct green financing.