Climate-related Disclosure Commitment of the Lenders, Credit Rationing, and Borrower Environmental Performance

Abstract

Using lenders who become members of the Task Force on Climate-Related Financial Disclosures (TCFD) as a plausible exogenous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrower firms’ environmental performance. We find that client firms of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. The effects are stronger for polluting firms. TCFD-member lenders influence their borrowers’ environmental performance by charging higher loan spreads and reducing the number and amount of new loans issued to polluting firms. Moreover, polluting clients of TCFD-member lenders experience tightened financial constraints subsequently. Finally, client firms of TCFD-member lenders are more likely to adopt the TCFD framework for climate-related disclosure after the TCFD establishment.

Keywords: Climate-related Disclosure Commitment, Credit Rationing, Borrower Environmental Performance

JEL Classification: G21, G30, Q54