Mariassunta Giannetti | Stockholm School of Economics
Martina Jasova | Columbia University
Maria Loumioti | University of Texas at Dallas
Caterina Mendicino | European Central Bank (ECB)


financial institutions , sustainability reporting , strategic disclosure , credit exposure , zombie lending

JEL Codes:

G11 , G15 , G21

This policy brief is based on the paper: Giannetti, M., M. Jasova, M. Loumioti, C. Mendicino (2023): “Glossy Green” Banks: The Disconnect Between Environmental Disclosures and Lending Activities. Working paper The views expressed are those of the authors and not necessarily those of the European Central Bank.

Using confidential information on banks’ portfolios, inaccessible to market participants, we show that banks that emphasize the environment in their disclosures 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 and are robust to controlling for banks’ climate risk discussions. Examining the mechanisms behind the strategic disclosure choices, we highlight that banks are hesitant to sever ties with existing brown borrowers, especially if they exhibit financial underperformance.

Introduction and Motivation

Following the Paris Climate Agreement, banks face increasing pressure by regulators and other stakeholders to channel financing towards environmentally friendly firms with a low carbon footprint. In response to these pressures, banks have started to release a wealth of information regarding the sustainability of their lending policies. However, skepticism has grown louder about whether banks strategically disclose information to burnish their sustainability image, while masking their true sustainability impact. That is, their disclosures and claims could just be “cheap talk”.

Banks have incentives to portray themselves as environmentally-conscious in their external reporting. Prior research documents that sustainability-themed disclosures are associated with greater stock liquidity, higher market valuations, lower cost of capital and increased investments from institutional owners (e.g., Plumlee et al., 2015; Barth et al., 2017; Ioannou and Serafeim, 2019; Bonetti et al., 2023; Gibbons, 2023; Krueger et al., 2023). Indeed, recent evidence shows that most sustainability engagement requests that firms receive from institutional investors concern adoption of sustainability reporting (e.g., Kim et al., 2019; Cohen et al., 2023). With regards to other stakeholders, external reporting has been linked to firms’ capabilities in attracting human capital (e.g., deHaan et al., 2023), with employees being particularly attentive to firms’ sustainability actions (e.g., Colonnelli et al., 2024; Krueger et al., 2024). In addition, over time, sell-side analysts have requested from firms to disclose more sustainability-focused information during earnings conference calls (e.g., Sautner et al., 2023a; Sautner et al., 2023b). Collectively, firms’ reporting practices are pivotal to stakeholder perceptions of firms’ sustainability commitments and agenda. Importantly, prior research has provided ample evidence of a link between transparency and greater engagement in sustainability issues (e.g., Bolton et al., 2021; Downar et al., 2021; Fiechter et al., 2022; Tomar, 2023; Cohen et al., 2023; Dai et al., 2024), as transparency reinforces firms’ commitments, but also firms tend to be more transparent when they make commitments. Last, within our research setting, banks have incentives to augment their sustainability-themed disclosures, because real loan portfolio exposures mostly remain opaque to external stakeholders. We thus focus on how banks communicate the sustainability of their lending policies in their annual reports to investors and other stakeholders.

Measuring environmental-themed disclosures

Our sample contains 1,397 reports (annual, sustainability, nonfinancial, integrated) issued by 101 systemic euro area banks over the 2014-2020 period. We develop a dictionary of environment-related keywords based on sustainability topics included in RepRisk—a database that covers ESG risk incidents— and in SASB Materiality Map. The dictionary includes phrases related to energy use and waste management (e.g., “oil”, “renewables”, “natural gas”, “building certificate”, “fracking”, “waste”), emissions (e.g., “carbon”, “CO2”), biodiversity (e.g., “biodiversity”, “forest”, “coral”) and other activities that are considered as damaging for the environment (e.g., “gmo”, “soy”, “sugar”). A detailed list of the keywords is included in Appendix B of the paper. Using content analysis on banks’ reports, we measure environmental disclosures at the bank-year level as the ratio of total environment-related keywords to the total number of words in these reports.

Consistent with the view that banks have strong incentives to augment sustainability-themed disclosures, we show that high environmental reporters have better ESG rating scores and attract a greater volume of green bond underwriting (i.e., firms commonly select these banks to underwrite their ESG-labeled bonds).

Figure 1

Note: The figure illustrates the relationship between banks’ environmental disclosures and their ex-ante exposure to borrowers in brown industries. It displays a bin scatter plot for the lagged share of the bank’s lending to brown borrowers as a proportion of total credit outstanding (Brown exposure) and the continuous variable of the bank’s environmental exposure. The scatter plots present averages for the data sorted into 20 bins based on exposure to brown firms.


We obtain granular data on sample banks’ loan issuance from Anacredit, a credit repository of the European Central Bank (ECB). We classify borrowers as “green” (i.e., firms whose operations do not adversely impact the environment) and “brown” (i.e., firms with a negative climate footprint) using the emission volume at the borrower’s country-industry-year level. We thus define as green (brown) borrowers whose industry emission levels rank in the bottom (upper) quintile of the variables’ distribution.

As shown in Figure 1, the banks with more extensive environmental disclosures have large exposures to brown industries, which can be potentially indicative of banks’ incentives to communicate about how their lending model is changing towards more green policies. But, do their new loan decisions indeed reflect such a change?

In our empirical analysis, we find that banks that overemphasize the environment in their reports do not lend more to green firms. In fact, these banks are more likely to extend credit to brown firms. This result is robust to defining greenness or brownness using borrower-level annual emissions standardized by total sales (data by Urgentem) or the content in borrowers’ business descriptions. In addition, our findings are not influenced by banks’ climate risk disclosures or forward-looking statements included in the reports.

We also examine whether banks that portray themselves as environmentally conscious are more likely to support brown borrowers in their efforts to transition towards greener business models. We use several proxies to capture whether a firm is in its green transition phase, including borrower’s age, capital expenditures or investments in R&D, or whether the borrower is an Scince Based Target initiative (SBTi) signatory. We fail to find evidence consistent with this argument.

Last, we document that high environmental reporting banks are particularly inclined to continue lending to brown zombie borrowers, i.e., financially underperforming firms with an adverse carbon footprint. This finding is potentially influenced by banks’ incentives to hide their exposure to brown industries by keeping zombie polluters alive. This is because these borrowers will likely default should banks stop channeling loans to them.

Concluding remarks

Over the past few years, banks have dedicated a substantial portion of their disclosures to amplify their environmental stewardship role. However, do banks “cheap talk”? We address this research question in the context of systemic euro area banks. Using content analysis on banks’ reports and granular detailed data on their lending activities, we show that banks that overemphasize the environment are more likely to lend to brown firms, without being more likely to financially support green borrowers. This result cannot be explained by high environmental reporters lending to brown firms that are in their green transition phase. In addition, we show that these banks continue lending to brown zombie firms, and thus, hide their brown exposures.

Our results have significant policy implications. First, we empirically validate the assessments by the ECB that banks offer inadequate and potentially misleading environmental disclosures (ECB, 2022). Second, the recent adoption of the EU Sustainable Finance Disclosure Regulation (SFDR) enhanced the investment portfolio transparency of assets managers active in the region. Importantly, the new rules motivated managers to make more environmentally conscious investment choices (Dai et al., 2024). The introduction of similar regulation in the banking sector could potentially yield similar important benefits.


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About the authors

Mariassunta Giannetti

Mariassunta Giannetti is the Katarina Martinson Professor of Finance at the Stockholm School of Economics, a CEPR research fellow, and a research member and fellow of the European Corporate Governance Institute (ECGI). She holds a Ph.D. in Economics from the University of California, Los Angeles and completed her B.A. and M.Sc. at Bocconi University (Italy). Professor Giannetti has broad research interests in corporate finance and financial intermediation. She has published highly cited research in leading journals in Finance, Economics, and Management, including the Journal of Political Economy, the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the American Economic Review, the Journal of Financial and Quantitative Analysis, the Review of Finance, and Management Science. Mariassunta has been honored with a number of prestigious international awards including the Review of Finance Pagano-Zechner Prize, the NYU Stern/ Imperial/ Fordham Rising Star in Finance award, the Sun Yefang Financial Innovation Award, the ECGI Standard Life Investments Finance Prize, and the Assar Lindbeck Medal. She is also the recipient of the Journal of Financial Intermediation best paper award, the ECB Lamfalussy Research Fellowship, the ECB Duisenberg Fellowship, and the Stockholm School of Economics Annual Research award. Professor Giannetti has been serving as associate editor of several journals, including the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Review of Finance, the Journal of Corporate Finance, Financial Management, the Journal of Banking and Finance, the Journal of Financial Stability, and European Financial Management and as a director of the European Finance Association, the Financial Intermediation Research Society, and the Financial Management Association. She is also an advisory board member of the Academic Female Finance Committee (AFFECT) of the American Finance Association and a frequent visitor and speaker at central banks around the world.

Martina Jasova

Martina Jasova is an assistant professor of economics at Barnard College, Columbia University. Her research combines empirical evidence and economic theory at the intersection of macroeconomics and finance. She works with granular microlevel data to provide answers to macro questions on topics related to financial frictions, central bank policies, and the labor market. Prior to joining Barnard College, she was a visiting fellow at Princeton University and worked at the European Central Bank and the Bank for International Settlements. She received a Ph.D. in Economics from Charles University in Prague.

Maria Loumioti

Maria Loumioti is an Associate Professor of Accounting at the University of Texas at Dallas. Her research spans multiple areas of financial intermediation including non-bank lending, leveraged loan markets, securitization, and sustainability. Her research has been published in the top journals in Accounting and is cited in media outlets including Bloomberg, Financial Times, The American Banker and Harvard Business Review. Professor Loumioti received the European Central Bank’s Lamfalussy Fellowship for promising young researchers. She has been serving as associate editor for the Journal of Accounting and Economics, and sits on the editorial boards of the Contemporary Accounting Research and European Accounting Review. She holds a Doctorate in Business Administration from Harvard Business School, and a BBA in Accounting and Finance from Athens University of Economics and Business. She was previously an Assistant Professor at the University of Texas at Dallas, Assistant Professor at the University of Southern California and a Visiting Assistant Professor at MIT Sloan.

Caterina Mendicino

Caterina Mendicino is Senior Team Lead Economist in the Financial Research Division of the Directorate General Research of the European Central Bank. Prior to that, she was Adviser in the Monetary Policy Directorate (2022-2023) and Lead Economist in the Monetary Policy Research Division of the ECB (2015-2022). She also worked as an Economist at the Bank of Portugal (2008-2015), and the Bank of Canada (2006-2008). Her research and policy interests cover a wide range of monetary and financial issues. Her work has been published in the Journal of Monetary Economics, the Review of Financial Studies, and the Journal of Finance, among others. She also published articles in general audience outlets including VoxEU, SUERF Policy Brief and The ECB BLOG. Caterina is an Advisory Board member of the Bernacer Prize and a member of the Macro Finance Society. She coordinated the ECB research task force on Monetary Policy, Macro-Prudential Policy and Financial Stability (2017-2021) and in 2020 she launched the WE ARE IN Macroeconomic and Finance Conference which aim at bringing together female economists to present and discuss new research on central banking topics. She currently serves as an associated editor at the Journal of Money, Credit and Banking. She holds a Ph.D from the Stockholm School of Economics – Stockholm. Additional information can be found on her webpage:

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