Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297356 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2916
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This study investigates the underlying reasons for banks' continued support of fossil fuel-based firms and examines the role of public guaranteed loans (PGLs) in redirecting resources towards greener economic activities, thereby facilitating the climate transition process. Using a unique pan-European credit register dataset, we combine supervisory bank data with firm-level greenhouse gas emission data and financial information. Our analysis yields three main findings. Firstly, European banks perceive lending to green companies as riskier compared to their brown counterparts, a phenomenon we term as the "green-transition risk." Secondly, we provide evidence that during the COVID-19 pandemic, European banks have strategically leveraged PGLs to channel resources towards environmentally sustainable activities, thereby augmenting the proportion of green loans in their portfolios and partially shifting the inherent "green-transition risk" to European governments and citizens. Lastly, our investigation reveals a banking preference for awarding PGLs to financially robust green firms over less profitable, highly indebted green firms, which could pose significant challenges for green businesses requiring financial support during the COVID-19 crisis.
Subjects: 
Climate Change
Green Lending
Public Guaranteed Loans
Credit Risk
JEL: 
G20
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6396-1
Document Type: 
Working Paper

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