Green firms are less risky : results from a preferential capital requirement programme in emerging Europe

This study evaluates the credit risk of sustainable loans in a preferential capital requirement programme. We utilise loanlevel data from a uniquely implemented programme from Hungary, applying logistic regressions and survival analysis techniques. We observe a significantly reduced credit risk for firms with renewable energy and electromobility loans, even after accounting for all relevant covariates. Models incorporating green characteristics predict a substantially lower credit risk for firms with green loans compared to models excluding green characteristics. These results are economically significant and robust to model specifications, alternative definitions of green firms and varying default definitions. We show that green loans' lower probability of default can justify a reduction of several percentage points in capital requirements.