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“Glossy Green” Banks: The Disconnect Between Environmental Disclosures and Lending Activities

Mariassunta Giannetti¹; Martina Jasova²; Maria Loumioti³; Caterina Mendicino⁴

¹ Stockholm School of Economics, SE-113 83 Stockholm, Sweden; and Centre for Economic Policy Research, 75007 Paris, France; and European Corporate Governance Institute, 1000 Brussels, Belgium; and Swedish House of Finance, 11383 Stockholm, Sweden · ² Centre for Economic Policy Research, 75007 Paris, France; and Barnard College, Columbia University, New York, New York 10027 · ³ University of Texas, Dallas, Richardson, Texas 75080 · ⁴ Centre for Economic Policy Research, 75007 Paris, France; and European Central Bank, 60314 Frankfurt am Main, Germany

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, shortening debt maturity, or requiring more collateral. These results cannot be attributed to the financing of borrowers’ transition toward 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. This paper was accepted by Caroline Flammer, sustainability. Funding: M. Giannetti acknowledges financial support from the Swedish House of Finance, the Nasdaq Nordic Foundation, the Karl-Adam Bonnier Foundation, and the Jan Wallander and Tom Hedelius Foundation. M. Jasova acknowledges financial support from the Barnard College Presidential Research Award. M. Loumioti acknowledges financial support from the University of Texas at Dallas. The opinions expressed herein are those of the authors and do not necessarily reflect those of the ECB or the Eurosystem. All errors are the authors’ own. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.07420 .

DOI

10.1287/mnsc.2024.07420

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