Credit Supply and Green Investments

Abstract

Does an increase in credit supply affect firms’ likelihood to invest in green technologies? Using text algorithms to extract information on the green investments of Italian firms between 2015 and 2019 and a firm-level instrument for credit availability, we find a large positive elasticity of green investments to credit supply. Consistent with a large capital intensity of green investments, this effect is concentrated among firms with ample internal resources. Subsidies and market competition, particularly if combined with environmental awareness, may enhance the impact of credit on green investments.

Keywords: Credit supply, CO2 emissions, green investments, climate finance, bank credit.

JEL Classification: G32, Q54, Q55