Do green firms get better loans?
Koji Takahashi and Junnosuke Shino published a white paper entitled Greenhouse gas emissions and bank lending investigating the effect of firms' GHG emissions on their bank loans with the Bank for International Settlement.
The authors use loan-level data from Japanese companies over the 2006-2018 period to challenge previous findings suggesting that climate risk only had a minor (although statistically significant) influence on corporate bond pricing.
They conclude that:
- Banks with high leverage and low profitability are more affected by GHG emissions when it comes to lending, suggesting that high GHG emissions are being associated with higher future credit costs.
- Banks are more sensitive to the GHG emissions of borrowing firms with low credit risk, implying that the GHG emission effect is driven by the banks' view that high GHG emissions imply high credit risk in the longer term.
- Firms with higher levels of GHG emissions and intensity should be more affected and suffer a decrease in lending compared to those with low emissions.
- The effect of GHG emissions on loans appears to have been significant even before the signing of the Paris Agreement in 2015, which is usually considered as the starting point for the integration of GHG emissions in financial processes.
- New green finance policies are likely to affect the lending behaviour of banks heterogeneously, as their lending behaviour to brown firms vary significantly.
These valuable results could be extended in the future by including banking sectors from other countries than Japan only and taking into account loans to SMEs beyond listed firms.