Do Voluntary Pledges Make Loans Greener?

38 Pages Posted: 16 Apr 2024

See all articles by Tobias Berg

Tobias Berg

Goethe University Frankfurt

Robin Döttling

Erasmus University Rotterdam (EUR); Rotterdam School of Management, Erasmus University

Xander Hut

Goethe University Frankfurt

Wolf Wagner

Erasmus University Rotterdam (EUR)

Date Written: April 2, 2024

Abstract

We analyze whether voluntary green pledges result in greener loan origination in the project finance (PF) market. The PF market is of key importance for financing large-scale, climate-relevant projects globally. We can directly classify the environmental impact of expenditures financed through PF loans because projects are single-purpose developments. We exploit a tightening of the Equator Principles (EP) that introduced comprehensive climate risk management requirements to newly originated PF loans. This allows us to disentangle the effect of a lender's sign-up decision from the impact of the green pledge itself. In lender-level and loan-level analyses, we find no evidence for a shift from brown to green lending by EP members relative to non-EP members after the tightening. We corroborate this null result using a wide range of alternative model specifications.

Keywords: Project Finance, Green Lending, Climate Risk, Equator Principles

JEL Classification: G21

Suggested Citation

Berg, Tobias and Döttling, Robin and Hut, Xander and Wagner, Wolf, Do Voluntary Pledges Make Loans Greener? (April 2, 2024). Available at SSRN: https://ssrn.com/abstract=4781649 or http://dx.doi.org/10.2139/ssrn.4781649

Tobias Berg

Goethe University Frankfurt ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Robin Döttling

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Xander Hut (Contact Author)

Goethe University Frankfurt ( email )

Finance Department
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Wolf Wagner

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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