'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
73 Pages Posted: 2 May 2023 Last revised: 3 May 2024
Date Written: May 3, 2024
Abstract
Using confidential information on banks’ portfolios, we show that banks that emphasize the sustainability of their lending policies in their disclosures do not exhibit a reduced environmental impact and if anything, they 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. Examining the mechanisms behind the strategic disclosure choices reveals that banks extend credit to existing brown borrowers, especially those who are financially underperforming.
Keywords: financial institutions, sustainability reporting, strategic disclosure, zombie lending, ChatGPT
JEL Classification: G11, G15, G21
Suggested Citation: Suggested Citation