Do banks price firms’ climate transition risks?

Wildmer Daniel Gregori, Daniel Abreu, Laura Bartolomeu and Fotios Kalantzis

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This study examines whether banks incorporate climate transition risks into loan pricing for non-financial firms in Portugal, using loan-level data from 2018 to 2023. The results show that banks do price climate transition risks, with firms exhibiting greater emission intensity facing higher interest rates and smaller loan amounts, indicating both a pricing and credit rationing response to environmental risk. Public support measures influence how climate risk is transmitted, highlighting the potential relevance of policies with explicit environmental criteria. When accounting for the emission reduction efforts that firms are required to undertake under the current policies scenario, banks become more sensitive to firms’ emission levels when pricing interest rates. This suggests that banks incorporate, to some extent, expected future adjustment costs into their lending decisions. Coordinated government and prudential policies may help channel credit to low-emission and transformative projects, fostering the green transition while safeguarding financial stability.

JEL-codes: G21 Q52 Q53 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-ene and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202603

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