“Glossy Green” Banks: The Disconnect Between Environmental Disclosures and Lending Activities

Using confidential information on banks’ portfolios, we show that banks that emphasize the sustainability of their lending policies in their disclosures do not exhibit a reduced environmental impact and if anything, they extend a higher volume of credit to brown borrowers, without charging higher interest rates or shortening debt maturity. These results cannot be attributed to the financing of borrowers’ transition towards greener technologies. Examining the mechanisms behind the strategic disclosure choices reveals that banks extend credit to existing brown borrowers, especially those who are financially underperforming.