Managerial and financial barriers during the green transition

We use data on 10,852 firms across 22 emerging markets to analyse how credit constraints and deficient firm management inhibit corporate investment in green technologies. For identification, we exploit quasi-exogenous variation in local credit conditions. Our results indicate that both credit constraints and green managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) reveals the pollution impact of these constraints. We show that in areas where more firms are credit constrained and weakly managed, industrial facilities systematically emit more CO2 and other gases. This is corroborated by the finding that in areas where banks needed to deleverage more after the Global Financial Crisis, industrial facilities subsequently reduced their carbon emissions considerably less. On aggregate this kept CO2 emissions 5.6% above the level they would have been in the absence of credit constraints.