This paper examines the impact of greenhouse gas (GHG) emissions on firms' financing costs, hypothesizing that lower emissions result in a discount justified by reduced exposure to transition risk. It also investigates whether such discounts, when applied to clients holding a significant share of loans, generate indirect effects on the credit supply to other firms.
The estimates reveal that a reduction in GHG emissions is associated with a decrease in the cost of credit. If the reduction benefits larger clients, there is a decline in the bank's profitability, which the bank tends to offset by expanding the credit supply to smaller borrowers, particularly those operating in sectors most affected by the green transition.
