DP15886 Managerial and Financial Barriers to the Net-Zero Transition

Author(s): Ralph de Haas, Ralf Martin, Mirabelle Muûls, Helena Schweiger
Publication Date: March 2021
Date Revised: June 2021
Keyword(s): CO2 emissions, energy efficiency, Financial Frictions, Management Practices
JEL(s): D22, G32, L20, L23, Q52, Q53
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15886

We use data on 11,233 firms across 22 emerging markets to analyse how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification, we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions.