Working Paper: CEPR ID: DP18286
Authors: Mariassunta Giannetti; Martina Jasova; Caterina Mendicino
Abstract: Using a credit registry of European banks’ new loan issuance and content analysis on their environmental disclosures, we show that banks that portray themselves as environmentally conscious extend a higher volume of credit to borrowers in brown industries. These results are robust even after controlling for banks’ climate risk discussions and cannot be attributed to the financing of borrowers’ transition towards greener technologies. Examining the mechanisms behind strategic disclosure choices, we highlight that banks are hesitant to sever ties with existing brown borrowers, particularly when those borrowers exhibit financial underperformance. The discrepancy between environmental disclosures and lending activities is more pronounced when banks have low capital adequacy.
Keywords: financial institutions; sustainability reporting; strategic disclosure; credit exposure; zombie lending
JEL Codes: G11; G15; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banks' environmental disclosures (G28) | higher volume of credit to borrowers in brown industries (G21) |
| low capital adequacy (O16) | higher volume of credit to borrowers in brown industries (G21) |
| existing lending relationships (G21) | continued lending to existing brown borrowers (G21) |
| environmental disclosures (Q56) | disconnect between environmental disclosures and lending activities (G21) |
| banks' financial performance (G21) | banks' environmental disclosures (G28) |
| banks' capital adequacy (G21) | banks' environmental disclosures (G28) |
| brown industries (L71) | no evidence of investment in R&D or fixed assets (G31) |