Carbon Emissions and the Bank-Lending Channel

57 Pages Posted: 4 Feb 2022

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: December 2021

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: bank lending, Carbon Emissions, environmental performance, greenwashing, Real effects

JEL Classification: D62, G12, G21, G23, G30

Suggested Citation

Kacperczyk, Marcin T. and Peydro, Jose-Luis, Carbon Emissions and the Bank-Lending Channel (December 2021). CEPR Discussion Paper No. DP16778, Available at SSRN: https://ssrn.com/abstract=4026643

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

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