Taxonomy talks, credit walks: The EU's climate disclosure framework and bank lending

We study how mandatory climate-related disclosure affects bank lending using the phased introduction of the EU Taxonomy Regulation. Exploiting the staggered development and implementation of the regulation, we distinguish banks' responses to anticipated disclosure requirements from their responses to realized firm-level sustainability information. Using syndicated loan data from 2016 to 2025 and a loan-level difference-in-differences design, we show that banks adjust lending to regulated firms with greater Taxonomy-eligible exposure following the 2019 announcement, reallocating credit toward similarly exposed non-regulated firms. Once firms report alignment, higher alignment is associated with larger loan volumes. We further show that banks adjust contractual terms to manage transition risk.