Do Banks Practice What They Preach? Brown Lending and Environmental Disclosure in the Euro Area

Abstract

We examine whether the level of environmental disclosure in fnancial reports equates with less brown lending by banks. We use granular credit register data and detailed information on the frm-level intensity of greenhouse gas emissions and fnd a negative relationship. This relationship is contingent on the tone of the fnancial report: a negative tone, refecting greater awareness of environmental risks, leads to less brown lending; a positive tone, indicating lower awareness, leads to more brown lending. These fndings highlight the importance of the awareness of environmental risks as critical, urgent, and pressing threats to creating environmentally responsible lenders.