We study the relation between banks’ environmental reporting and lending activities. We create a proxy for environmental-themed disclosures using content analysis on banks’ investor reports. Taking advantage of granular loan-level data from a euro-area credit registry, we show that banks with extensive environmental disclosures lend more to brown borrowers and do not provide more credit to firms in green industries. We find that these results are not driven by banks’ financing of brown borrowers’ transition to greener technologies. Instead, these banks lend to the weakest borrowers in brown industries, especially if they have low capital adequacy. Our results suggest that European banks overemphasize their climate goals and credentials, but continue to be tied to their established credit relationships with polluting borrowers.

Does an increase in credit supply affect firms' likelihood to invest in green technologies? To answer this question, we use text algorithms to extract information on green investments from the comments to the financial statements of Italian SMEs between 2015 and 2019. To identify the effect of credit supply, we use all loans disbursed by banks operating in Italy to construct a firm-specific time-varying instrument for credit availability. We find a large positive elasticity of green investments to credit supply. The effect is concentrated among firms with high availability of internal capital and in areas with higher preferences for environmental protection. Subsidies and market competition can spur green investments if combined with environmental awareness.

How do bankers treat green firms? Utilizing unique loan application and banker preference data from a mid-sized bank, we find that customer managers, serving as front-line bankers, provide more favorable recommendations for green firms, particularly when they hold strong green values. However, a minority of environmentally skeptical bankers counteract this trend. These brown managers fake green interests when their recommendations bear no weight, and conversely, diminish their endorsements to green firms when they do hold significance. Additionally, brown loan officers, acting as superiors to these managers, strive to offset positive green firm evaluations by downgrading them.