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Department of Finance Seminar with Professor Karolin Kirschenmann, ZEW From Green Bonds to Green Loans: Additionality or Business as Usual?
Abstract: Green bonds are a popular financial instrument intended to support the financing of environmentally beneficial projects. Yet, little is known about how banks use the funds generated from these bonds. In this paper, we examine how banks' green bond funding affect their corporate lending and the environmental performance of their borrowers. Using data on European banks' green bond issues and their syndicated lending matched with carbon emissions information of the borrowing firms, we find that banks increase the financing of green firms in the form of sustainability-linked loans after issuing green bonds. Environmental benefits materialize as recipient firms reduce their emissions. However, these effects are only evident for already greener firms, so more targeted incentives seem needed to channel financial flows more into sustainable transition projects.