When Green Meets Green

Abstract

We investigate whether and how the environmental consciousness (greenness for short) of firms and banks is reflected in the pricing of bank credit. Using a large international sample of syndicated loans over the period 2011-2019, we find that green banks indeed reward firms for being green in the form of cheaper loans--however, only after the ratification of the Paris Agreement in 2015. Thus, we find that environmental attitudes matter "when green meets green.'' We further construct a stylized theoretical model to show that the green-meets-green pattern emerges in equilibrium as the result of third-degree price discrimination with regard to firms' greenness.

Keywords: Paris Agreement, Green Firms, Green Banks, Bank Lending

JEL Classification: A13, G21, Q51, Q58