Working Paper: CEPR ID: DP16778
Authors: Marcin Kacperczyk; Jos Luis Peydr
Abstract: We study how firm-level carbon emissions affect bank lending and, through this channel, real, financial, and environmental outcomes in a sample of global firms with syndicated loans. For identification, we use bank-level commitments to carbon neutrality to proxy for changes in banks’ green preferences and, via these bank commitments, shocks to firms with previous credit from these banks. We find that firms with higher (lower) scope-1 emission levels previously borrowing from banks making commitments subsequently receive less (more) total bank credit. The economic mechanism at play is bank credit supply, and results are consistent with bank preferences for green rather than differential response to an increased firm risk. The reduction in bank lending to brown firms triggers the reduction in these firms’ total debt, leverage, total assets, and real investments. The effects are non-linear, with a strong cut (increase) in lending and investments for brown (green) firms, and mild effects for other firms. Despite the real and financial effects, we find no improvement in hard firm-level environmental scores for brown firms, but only evidence consistent with firms’ greenwashing. Overall, our results suggest that banks affect carbon emissions via credit reallocation (from brown to green firms) rather than via providing loans to brown firms for the investment necessary to reduce carbon emissions.
Keywords: carbon emissions; bank lending; real effects; environmental performance; greenwashing
JEL Codes: G12; G21; G23; G30; D62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scope 1 emissions (L71) | total bank credit (G21) |
| bank commitments to carbon neutrality (F64) | total bank credit (G21) |
| total bank credit (G21) | total assets (G19) |
| total bank credit (G21) | capital expenditures (G31) |
| bank commitments to carbon neutrality (F64) | credit to brown firms (G24) |
| bank commitments to carbon neutrality (F64) | credit to green firms (Q52) |