Green banking illusion? The influence of "Eco-Conscious" bank shareholders on credit allocation

Adrian Böhm, Christian Eufinger, Igor Kadach and Yuki Sakasai

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Can voluntary market-based initiatives effectively promote greener credit allocation? Our paper addresses this question by assessing the role of self-declared environmentally conscious bank shareholders, specifically those endorsing the UN Principles for Responsible Investment, in shaping the sustainability of bank loan portfolios. For our analysis, we utilize a comprehensive dataset that includes information on syndicated loans, firm-level emissions, and both bank and firm ownership and financial data. Controlling for loan demand, at the bank–firm level, we find no evidence of an association between a higher ownership stake by eco-conscious bank shareholders and shifts in banks’ loan allocation strategies between firms with low and high emissions. At the firm-level, we find that lending relationships with banks characterized by greater eco-conscious ownership are not associated with significantly improved environmental performance among borrower firms. Our analysis reveals that banks are treated differently by investors compared to non-financial firms, likely due to regulatory requirements and their unique governance structures, which might explain the observed lack of influence of eco-conscious bank shareholders. Our findings thus indicate the potential limitations of relying on self-declared eco-conscious bank shareholders to guide banks toward environmentally sustainable credit allocation.

Date: 2025-03-12
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Published in Journal of Corporate Finance (2025-03-12)

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