'Glossy Green' Banks: The Disconnect Between Environmental Disclosures and Lending Activities
Swedish House of Finance Research Paper No. 23-07
European Corporate Governance Institute – Finance Working Paper No. 919/2023
78 Pages Posted: 2 May 2023 Last revised: 27 Nov 2023
Date Written: November 16, 2023
Abstract
Using confidential information on banks’ portfolios, inaccessible to market participants, we show that banks that emphasize the environment in their disclosures extend a higher volume of credit to brown borrowers, without charging higher interest rates or shortening debt maturity. These results cannot be attributed to the financing of borrowers’ transition towards greener technologies and are robust to controlling for banks’ climate risk discussions. Examining the mechanisms behind the strategic disclosure choices, we highlight that banks are hesitant to sever ties with existing brown borrowers, especially if they exhibit financial underperformance.
Keywords: financial institutions, greenwashing, sustainability reporting, credit exposure, zombie lending
JEL Classification: G11, G15, G21
Suggested Citation: Suggested Citation