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Do banks fuel climate change?

Author

Listed:
  • Reghezza, Alessio
  • Altunbas, Yener
  • Marques-Ibanez, David
  • Rodriguez d’Acri, Costanza
  • Spaggiari, Martina

Abstract

Do climate-oriented regulatory policies affect the flow of credit towards polluting firms? We match loan-level data to firm-level greenhouse gas emissions to assess the impact of the Paris Agreement. We find that, following this agreement, European banks reallocated credit away from polluting firms in relative terms. Specifically, euro area banks’ loan share to more polluting firms decreased by about 3percentage points compared to less polluting (or “green”) firms after the 2015 Paris Agreement (COP21). This result is stronger for banks that are well capitalized, have lower credit quality, and are less profitable.

Suggested Citation

  • Reghezza, Alessio & Altunbas, Yener & Marques-Ibanez, David & Rodriguez d’Acri, Costanza & Spaggiari, Martina, 2022. "Do banks fuel climate change?," Journal of Financial Stability, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:finsta:v:62:y:2022:i:c:s1572308922000717
    DOI: 10.1016/j.jfs.2022.101049
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    More about this item

    Keywords

    Climate change; Paris agreement; Loan-level data; Difference-in-differences;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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