Do creditors care about greening in corporations? Do contingencies matter?

This study assesses whether creditors consider ecological practices (i.e., resource usage, emissions, and eco‐innovation) when setting interest rates during loan decisions and whether firm‐level contingencies play a role in this relationship. Based on a sample of 38,127 firm‐year observations of non‐financial firms operating worldwide between 2004 and 2019, our evidence indicates that eco‐friendly practices have no significant direct effect on the cost of debt. Thus, we consider other theoretically expected channels that moderate this link. Notably, profitability and board gender diversity significantly moderate the relationship between eco‐friendly practices and the cost of debt. Further investigation reveals interesting associations between low and high governance systems, low and high financial development environments, code law versus common law systems, and polluting versus non‐polluting sectors. We suggest theoretical and practical implications by which firms can reap greater benefits from environmental engagement.