Climate-related Disclosure Commitment of the Lenders, Credit Rationing, and Borrower Environmental Performance

Prof. Buhui Qiu is Director of Doctoral Studies at the University of Sydney Business School. He received his PhD in Finance from the University of Cincinnati in July 2009. Prof. Qiu's research interests are in the broad areas of corporate finance, accounting and capital markets. His academic articles have been widely published (or accepted for publication) in major international journals in accounting, finance, international business, business law and general science such as The Accounting Review, Management Science, Journal of Financial and Quantitative Analysis, Journal of International Business Studies, Contemporary Accounting Research, Review of Corporate Finance Studies, Journal of Money Credit and Banking, among others.

Using lenders becoming members of the Task Force on Climate-Related Financial Disclosures (TCFD) as a plausible exogeneous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrower firms’ environmental performance. We find that client firms of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. The effects are stronger for polluting firms. Moreover, TCFD-member lenders influence their borrowers’ environmental performance via charging higher loan spread and reducing the number and amount of new loans issued to polluting firms. Finally, polluting clients of TCFD-member lenders experience tightened financial constraints subsequently.