Greenhouse gas emissions and bank lending

Koji Takahashi and Junnosuke Shino

No 1078, BIS Working Papers from Bank for International Settlements

Abstract: This paper investigates the effect of the greenhouse gas (GHG) emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018. Previous findings suggest that climate risks priced in corporate bonds or syndicated loans are statistically significant but economically minor. This paper investigates bank lending behavior in terms of the loan amount, which we consider to have a more direct effect on firm investment decisions. This paper finds that banks significantly decrease loans to firms with higher GHG emissions. Moreover, this GHG emissions effect appears to have prevailed even before the signing of the Paris Agreement, which the existing literature considers as the starting point where GHG emissions are incorporated in the pricing of debt instruments as credit risk. Finally, banks with greater leverage and a lower return on assets are more likely to decrease loans to firms with high GHG emissions.

Keywords: greenhouse gas; bank lending; leverage; loan-level data (search for similar items in EconPapers)
JEL-codes: E51 G21 Q54 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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