Do banks price environmental risk? Only when local beliefs are binding!
Abstract
What is the impact on the cost of bank credit of local corporate environmental and biodiversity exposure? At loan origination, banks charge higher rates to firms creating more environmental damage, especially when they are lowly capitalized, and when the firms operate in “greener” states with lower climate denial and more negative environmental news. Biodiversity risk is also priced, especially when public interest in it intensifies. Following the Trump withdrawal from Paris, banks modulate their environmental risk pricing in “browner” states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes.
Fields of Study & Subjects
Islamic Finance and Banking Studies
Publication details
- Journal / source
- Journal of Financial Stability
- Publisher
- Elsevier BV
- Volume
- 86
- Pages
- 101570–101570
- Publication date
- 28 July 2026
- Language
- EN