Do bank green bonds deliver? Evidence from global lending and borrower emissions

We examine how bank-issued green bonds affect the environmental characteristics of lending portfolios. We develop a framework in which green bond issuance lowers banks’ funding costs but increases the cost of misalignment between the “green” label and the environmental profile of their loan portfolios. Because existing lending relationships involve switching costs and information rents, banks may respond by adding visibly green borrowers while retaining carbon-intensive legacy clients. This selective adjustment increases the dispersion of outcome-based environmental performance within the lending portfolio. Using data on 725 banks across 44 countries and regions from 2007 to 2022, we find that green bond issuance is followed by higher average environmental ratings but weaker and more dispersed outcome-based environmental performance. Instrumental-variable estimates exploiting staggered entry into the Network for Greening the Financial System (NGFS) confirm the divergence between score-based and outcome-based measures. The divergence is stronger where institutional investor monitoring and regulatory scrutiny are greater. Overall, the evidence suggests that green bond commitments reshape lending portfolios through selective adjustment rather than broad-based environmental improvement.