Abstract
Using a credit registry of European banks’ new loan issuance and content analysis on their environmental disclosures, we show that banks that portray themselves as environmentally conscious extend a higher volume of credit to borrowers in brown industries. These results are robust even after controlling for banks’ climate risk discussions and cannot be attributed to the financing of borrowers’ transition towards greener technologies. Examining the mechanisms behind strategic disclosure choices, we highlight that banks are hesitant to sever ties with existing brown borrowers, particularly when those borrowers exhibit financial underperformance. The discrepancy between environmental disclosures and lending activities is more pronounced when banks have low capital adequacy.