Business as usual: bank climate commitments, lending, and engagement

Parinitha Sastry, Emil Verner and David Marques-Ibanez

No 2921, Working Paper Series from European Central Bank

Abstract: This paper studies the impact of voluntary climate commitments by banks on their lending activity. We use administrative data on the universe of bank lending from 19 European countries. There is strong selection into commitments, with increased participation by the largest banks and banks with the most pre-existing exposure to high-polluting industries. Setting a commitment leads to a boost in a lender’s ESG rating. Lenders reduce credit in sectors they have targeted as high priority for decarbonization. However, climate-aligned banks do not change their lending or loan pricing differentially compared to banks without climate commitments, suggesting they are not actively divesting. We can reject that climate-aligned lenders divest from firms in targeted sectors by more than 2.6%. Firm borrowers are no more likely to set climate targets after their lender sets a climate target, which casts doubt on active engagement by lenders. These results call into question the efficacy of voluntary commitments. JEL Classification: Q50, G21

Keywords: banks; green lending; voluntary targets (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-eec, nep-ene, nep-env and nep-eur
Note: 328790
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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