Do Banks Consider Borrowers’Environmental Performance？Evidence from the Green Credit Policy in China

This paper investigates how banks’ loan pricing responds to the environmental performance of borrowing companies. Using a unique hand-collected dataset of bank loans in China, we find that banks reward borrowers that have higher environmental responsibility scores with lower loan interest rates. However, borrowers’ environmental performance is recognized in the loan pricing only by state-owned banks (SOBs), but not by non-state-owned banks (non-SOBs), after the adoption of the “Green Credit Guidelines” (GCG) in 2012. Cross-sectional analyses reveal that the effect is stronger for borrowers located in regulatory intensitive regions, but not for those in heavily polluting industries. Our study provides novel evidence that lenders’ social agenda is the key to facilitate an effective green credit channel. We offer policy insights that government interventions are required to promote sustainable economic development