Model-based financial regulations impair the transition to net-zero carbon emissions

Matteo Gasparini (), Matthew C. Ives, Ben Carr, Sophie Fry and Eric Beinhocker
Additional contact information
Matteo Gasparini: University of Oxford
Matthew C. Ives: University of Oxford
Ben Carr: London School of Economics
Sophie Fry: University of Oxford
Eric Beinhocker: University of Oxford

Nature Climate Change, 2024, vol. 14, issue 5, 476-481

Abstract: Abstract Investments via the financial system are essential for fostering the green transition. However, the role of existing financial regulations in influencing investment decisions is understudied. Here we analyse data from the European Banking Authority to show that existing financial accounting frameworks might inadvertently be creating disincentives for investments in low-carbon assets. We find that differences in the provision coverage ratio indicate that banks must account for nearly double the loan loss provisions for lending to low-carbon sectors as compared with high-carbon sectors. This bias is probably the result of basing risk estimates on historical data. We show that the average historical financial risk of the oil and gas sector has been consistently estimated to be lower than that of renewable energy. These results indicate that this bias could be present in other model-based regulations, such as capital requirements, and possibly impact the ability of banks to fund green investments.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.nature.com/articles/s41558-024-01972-w Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nat:natcli:v:14:y:2024:i:5:d:10.1038_s41558-024-01972-w

Ordering information: This journal article can be ordered from
https://www.nature.com/nclimate/

DOI: 10.1038/s41558-024-01972-w

Access Statistics for this article

Nature Climate Change is currently edited by Bronwyn Wake

More articles in Nature Climate Change from Nature
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().