Do Firms With Higher Energy Efficiency Have Better Access to Finance?

Abstract

Improving energy efficiency quickly is key to mitigating climate change and a large part of such improvements has to be implemented in firms. But because most energy efficiency improvements require upfront investments, good access to external finance is important. Theory suggests that information asymmetries may prevent lenders from including energy efficiency into their lending assessment, even though higher energy efficiency makes a firm more cost-competitive and its collateral worth more, especially if stringent climate change mitigation plans are implemented. Empirically, little is known about the impact of energy efficiency on access to external finance. Here we examine for the first time empirically the effect of a firm’s higher energy efficiency on their ability to obtain loans in European Union countries. We exploit a unique firm-level dataset that links a survey from the European Investment Bank on energy efficiency of firms’ building stock and on access to external finance with the ORBIS firm database for European firms. We find that energy efficiency has no effect on the ability of a firm to obtain external financing compared to other indicators on the financial or operational health of the firm. The results reveal an unexploited potential for energy efficiency policy to signal when firms are energy efficient.