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Adrian von Jagow

Associate, E-axes Forum | PhD student, WU Vienna

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Dengjun Zhang, in “How environmental performance affects firms’ access to credit: Evidence from EU countries,” investigates how the outcomes of loan applications depend on a firm’s environmental performance. Based on survey data from seven EU “new member states” and three other EU countries, he finds that firms that invested in emission abatement technologies fare better across three measures: They (1) receive, on average, more positive lending decisions, and (2) more often receive uncollateralized loans, and (3) have to provide less collateral as a share of the loan value. This is surprising, because abatement equipment “retains lower value in the event of bankruptcy than other tangible assets and is, therefore, less favorable to lenders.”

However, banks seem to favor such firms, potentially because they confront their legal liability for pollution prevention and run a lower risk of causing environmental damage during production.Zhang also tests for a differential effect between new EU member states and the other member states. Indeed, only the effect on lending decisions is similar across the two regions. Environmentally committed firms in new member states are however not more likely to receive uncollateralized oder undercollateralized loans than firms without investments in abatement. The findings suggest that banks already practice a “green supporting factor” when providing credit to firms. However, in Central and Eastern Europe, this principle is less practiced, as evidenced by the collateral decisions for green firms’ loans.

Zhang, D. (2021). How environmental performance affects firms’ access to credit: Evidence from EU countries. Journal of Cleaner Production,