Managerial and Financial Barriers to the Net Zero Transition

Abstract

We use data on 11,233 firms across 22 emerging markets to analyze how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and 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) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions.

Green Investment by Firms: Finance or Climate Driven?

“…Yet, knowledge about these determinants is particularly important for policy makers to support favorable conditions for firms' green investment strategies. Our work is closest to that by De Haas et al (2022), who show that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies.…”

Unlocking Sustainable Private Sector Growth in the Middle East and North Africa

“…Better-managed firms have higher operating profits, are more outward-oriented and invest more in research and development (Bloom et al, 2019;Hyland et al, 2019; see Scur et al, 2021, for a summary). Better management practices may also improve the productivity of skilled labour (Gosnell et al, 2020) and energy intensity may decline while investments in energy efficiency may increase (De Haas et al, 2021;Schweiger and Stepanov, 2022).…”

Financing SMEs for sustainability

“…For companies incorporated in India, Singapore, Hong Kong, Taiwan, and Indonesia, the DBS Foundation launched a grant programme (up to SGD 10,000) to SMEs that seek to adopt innovative sustainable practices. The issuance is conditional on the capability of businesses to propose solutions to reduce energy consumption and waste, or develop sustainable supply chains (DBS Foundation, 2022 [149]).…”