- Eurozone banks are offering loans on more favourable terms to companies with a better climate performance and may be punishing polluters.
- A net 20 per cent of banks surveyed said that they expect to ease credit standards for green firms, and 13 per cent plan to do the same for companies in transition.
Eurozone banks are offering loans on more favourable terms to companies with a better climate performance and may be punishing polluters, according to a blog post published by the European Central Bank.
The ECB has been pushing banks for years to disclose and manage their climate risk, using a range of tools like binding supervisory orders, fines and collateral repricing.
The finding is significant as the European economy relies heavily on bank finance for investment, in contrast with the United States, where capital markets are more widely used to generate funding.
“Banks offer a ‘climate discount’ in their risk assessment to green firms and those in transition,” the blog said, analysing responses in the ECB’s quarterly Bank Lending Survey. “Also, they seem to charge a ‘climate risk premium’ for high-emitting firms.”
A net 20 per cent of banks surveyed said that they expect to ease credit standards for green firms, and 13 per cent plan to do the same for companies in transition. Meanwhile, a net 35 per cent said that climate risk would result in tighter lending conditions for high-emitting companies.
Firms facing physical risk from climate change can also expect more expensive financing, but transition risk is not expected to have a meaningful impact.
High-energy-performance buildings have an increasingly dampening impact on credit standards, and banks also see increasing demand to finance such units.