Credit Supply and Green Investments

Does an increase in credit supply affect firms' likelihood to invest in green technologies? Using text algorithms to extract information on the green investments of a large sample of Italian Small and Medium Enterprises between 2015 and 2019, and a firm-level instrument for credit availability, we find a large positive elasticity of green investments to credit supply. Consistent with a high capital intensity of green investments, this effect is concentrated among firms that are relatively less financially constrained. Subsidies and market competition, especially when combined with environmental awareness, may enhance the impact of credit on green investments.