DP16536 When Green Meets Green

Author(s): Hans Degryse, Roman Goncharenko, Carola Theunisz, Tamas Vadasz
Publication Date: September 2021
Keyword(s): bank lending, Green Banks, Green Firms, Paris agreement
JEL(s): A13, G21, Q51, Q58
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16536

We investigate whether and how the environmental consciousness (greenness for short) of firms and banks is reflected in the pricing of bank credit. Using a large international sample of syndicated loans over the period 2011-2019, we find that firms are indeed rewarded for being green in the form of cheaper loans -- however, only when borrowing from a green consortium of lenders, and only after the ratification of the Paris Agreement in 2015. Thus, we find that environmental attitudes matter "when green meets green." We further construct a simple stylized theoretical model to show that the green-meets-green pattern emerges in equilibrium as the result of third-degree price discrimination with regard to firms' greenness.