Carbon Emissions and the Bank-Lending Channel

We study how firm-level carbon emissions affect bank lending and, through this channel, real outcomes in a sample of global firms with syndicated loans. We use bank-level commitments to decarbonization to proxy for changes in banks’ green preferences and, via these commitments, shocks to firms with previous credit from these banks. Firms with higher carbon footprint previously borrowing from committed banks subsequently receive less bank credit. Affected firms also lower their total debt, leverage, size, and real investments, and increase their liquid assets. We find no improvement in environmental performance of brown firms, but only evidence consistent with firms’ greenwashing.