Are financial regulations impairing the transition to net zero?

Matthew Ives, Eric Beinhocker, Matteo Gasparini, Sophie Fry and Ben Carr

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: The discussions around the role of the financial system in fostering the green transition have been steadily growing. Companies are increasingly required to quantify and disclose climate risks. However, the influential role of existing accounting and financial reporting requirements, and broader financial regulation, are not commonly considered to be a significant driver in the transition. Analyzing data and classifications from the European Banking Authority, we test whether existing frameworks might inadvertently be disincentivizing divestments from brown assets. We find that a significant bias exists – differences in the provision coverage ratio (PCR) reveal banks have to account for nearly double loan loss provisions for lending to non-brown sectors as to brown. We argue 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. Finally, we discuss the possible underlying drivers of this effect and some avenues for further research.

Pages: 23 pages
Date: 2023-06
References: Add references at CitEc
Citations:

Downloads: (external link)
https://oms-inet.files.svdcdn.com/production/files ... 11.pdf?dm=1691395242 (application/pdf)

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:amz:wpaper:2023-11

Access Statistics for this paper

More papers in INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by INET Oxford admin team ().