Global Bank Lending Under Climate Policy

What is the response of bank foreign subsidiaries to climate policy in their host countries? This paper finds that global banks with high environmental performance increase their presence in countries after local authorities strengthen their climate-related actions. Through their foreign subsidiarie...

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Bibliographic Details
Published in:IMF economic review 2024-06, Vol.72 (2), p.858-901
Main Authors: Demirgüç-Kunt, Asli, Pedraza, Alvaro, Pulga, Fredy, Ruiz-Ortega, Claudia
Format: Article
Language:English
Subjects:
Bank loans
Banking
Banking industry
Banks
Capital Markets
Carbon
Climate change
Climate policy
Economic Policy
Economics
Economics and Finance
Emissions
Foreign subsidiaries
Host country
International aspects
International banking
International banking facilities
International Economics
Macroeconomics/Monetary Economics//Financial Economics
Policy sciences
Political aspects
Research Article
Subsidiaries
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Summary:What is the response of bank foreign subsidiaries to climate policy in their host countries? This paper finds that global banks with high environmental performance increase their presence in countries after local authorities strengthen their climate-related actions. Through their foreign subsidiaries, these banks expand their credit by up to 5.2 percent following an increase in the one standard deviation in the host country’s climate policy index. Importantly, the paper does not find evidence that banks with low environmental scores exit in response to climate initiatives. The findings show that strengthening climate policy may also have other benefits—in addition to addressing carbon emission reduction, climate-related initiatives also appear to attract foreign capital from lenders with strong preferences for green assets.
ISSN:2041-4161
2041-417X
DOI:10.1057/s41308-023-00217-8