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Do banks practice what they preach? Brown lending and environmental disclosure in the euro area

Author

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  • Gambacorta, Leonardo
  • Polizzi, Salvatore
  • Reghezza, Alessio
  • Scannella, Enzo

Abstract

This study examines whether the level of environmental disclosure in banks’ financial reports matches less brown lending portfolios. Using granular credit register data and detailed information on firm-level greenhouse gas emission intensities, we find a negative relationship between environmental disclosure and brown lending. However, this effect is contingent on the tone of the financial report. Banks that express a negative tone, reflecting genuine concern and awareness of environmental risks, tend to lend less to more polluting firms. Conversely, banks that express a positive tone, indicating lower concern and awareness of environmental risks, tend to lend more to polluting firms. These findings highlight the importance of increasing awareness of environmental risks, so that banks perceive them as a critical and urgent pressing threat, leading to a genuine commitment to act as environmentally responsible lenders.

Suggested Citation

  • Gambacorta, Leonardo & Polizzi, Salvatore & Reghezza, Alessio & Scannella, Enzo, 2023. "Do banks practice what they preach? Brown lending and environmental disclosure in the euro area," CEPR Discussion Papers 18623, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18623
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    2. Galletta, Simona & Goodell, John W. & Mazzù, Sebastiano & Paltrinieri, Andrea, 2025. "The impact of environmental disclosure and controversies on bank value," Journal of Economics and Business, Elsevier, vol. 134.
    3. Svetlana Popova & Natalia Turdyeva, 2024. "Environmental and Climate Factors of Corporate Lending in Russia," Bank of Russia Working Paper Series wps143, Bank of Russia.
    4. Ventsislav Vechev & Diana Papradanova, 2026. "Financial Analysis of Green Bond Issuance Potential of Banks in Bulgaria in the Context of Sustainable Development," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 135-151.
    5. Buchetti, Bruno & Miquel-Flores, Ixart & Perdichizzi, Salvatore & Reghezza, Alessio & Lin, Luca X., 2024. "Loan guarantee and portfolio greening: evidence from European credit registers," Working Paper Series 2916, European Central Bank.
    6. Buklemishev, O. & Danilov, Yu., 2025. "Is profit important in the era of ESG?," Journal of the New Economic Association, New Economic Association, vol. 66(1), pages 177-194.
    7. Kaouthar Lajili & Sana Mohsni & Salvatore Polizzi & Enzo Scannella, 2025. "Value relevance of bank credit risk disclosure: “interventionist” and “non-interventionist” supervisory regimes," Review of Quantitative Finance and Accounting, Springer, vol. 65(3), pages 1005-1038, October.
    8. Silvia Bressan, 2025. "Does the environmental impact of banks affect their financial performance?," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(2), pages 261-278, June.

    More about this item

    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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