Firm Emissions and Credit Allocation

NBER Working Paper No. w34681 58 Pages Posted: 12 Jan 2026 University of California, Santa Cruz - Department of Economics University of California, Santa Cruz University of California, Santa Cruz Technical University of Denmark Date Written: January 2026 Do banks help or hamper green transition? To answer this question, we analyze the dynamics of bank lending to firms in the US, EU, and separately Denmark in relation to the borrowers' emissions of CO2. We evaluate the allocation of bank loans across industries and within industries across firms, allowing for heterogeneity of firm emissions and changes in these emissions. To facilitate green transition, bank lending needs to flow to greener and greening firms, but not out of high-emission industries that need funding to transition to cleaner production methods. Using syndicated loan data, we find that for US borrowers, bank lending was likely hampering green transition, while in the EU bank lending is more likely to facilitate it. Zooming in on Denmark, for which we have data on the full universe of firms and banks, we find more significant credit reallocation to greener firms, especially within industries. However, the reallocation of funds to green firms is, to a large extent, a byproduct of green firms becoming bigger. We do not find any evidence consistent with banks active stewardship of green transition. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org . Suggested Citation: Suggested Citation Santa Cruz, CA 95064 United States +1 (831) 459-4791 (Phone) HOME PAGE: http://https://sites.google.com/site/graceweishigu/home 1156 High St Santa Cruz, CA 95064 United States 1156 High St Santa Cruz, CA 95064 United States Lyngby Denmark National Bureau of Economic Research (NBER) Series Subscribe to this free journal for more curated articles on this topic