Managerial and Financial Barriers to the Green Transition

Using data on 10,776 firms across 22 emerging markets, we show that both credit constraints and weak green management hold back corporate investment in green technologies embodied in new machinery, equipment, and vehicles. In contrast, investment in measures to explicitly reduce emissions and other pollution is mainly determined by the quality of a firm’s green management and less so by binding credit constraints. Data from the European Pollutant Release and Transfer Register reveal the environmental impact of these organizational constraints. In areas where more firms are credit constrained and weakly managed, industrial facilities systematically emit more CO 2 and pollutants. A counterfactual analysis shows that credit constraints and weak management have respectively kept CO 2 emissions 4.5% and 2.3% above the levels that would have prevailed without such constraints. This is further corroborated by our finding that in localities where banks had to deleverage more due to the global financial crisis, carbon emissions by industrial facilities remained 5.6% higher a decade later. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.00772 .