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Global Bank Lending Under Climate Policy

Author

Listed:
  • Asli Demirgüç-Kunt

    (Center for Global Development)

  • Alvaro Pedraza

    (World Bank)

  • Fredy Pulga

    (Universidad de la Sabana)

  • Claudia Ruiz-Ortega

    (World Bank)

Abstract

What is the response of bank foreign subsidiaries to climate policy in their host countries? This paper finds that global banks with high environmental performance increase their presence in countries after local authorities strengthen their climate-related actions. Through their foreign subsidiaries, these banks expand their credit by up to 5.2 percent following an increase in the one standard deviation in the host country’s climate policy index. Importantly, the paper does not find evidence that banks with low environmental scores exit in response to climate initiatives. The findings show that strengthening climate policy may also have other benefits—in addition to addressing carbon emission reduction, climate-related initiatives also appear to attract foreign capital from lenders with strong preferences for green assets.

Suggested Citation

  • Asli Demirgüç-Kunt & Alvaro Pedraza & Fredy Pulga & Claudia Ruiz-Ortega, 2024. "Global Bank Lending Under Climate Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 858-901, June.
    • Handle: RePEc:pal:imfecr:v:72:y:2024:i:2:d:10.1057_s41308-023-00217-8
    DOI: 10.1057/s41308-023-00217-8
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    Cited by:

    1. Miguel, Faruk & Pedraza, Alvaro & Ruiz-Ortega, Claudia, 2024. "Climate-change regulations: Bank lending and real effects," Journal of Financial Stability, Elsevier, vol. 70(C).
    2. Fourné, Marius & Li, Xiang, 2024. "Climate policy and international capital reallocation," IWH Discussion Papers 20/2024, Halle Institute for Economic Research (IWH).

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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