Banking and Climate Change

Información del proyecto

ClimateBanking

Identificador del acuerdo de subvención: 101044011

DOI

10.3030/101044011

Fecha de la firma de la CE 13 Mayo 2022

Fecha de inicio 1 Junio 2023

Fecha de finalización 31 Mayo 2028

Financiado con arreglo a

• European Research Council (ERC)

Coste total

€ 1 841 342,50

Aportación de la UE

€ 1 841 342,50

Coordinado por

JOHANN WOLFGANG GOETHE-UNIVERSITAET FRANKFURT AM MAIN
Germany

Periodic Reporting for period 1 - ClimateBanking (Banking and Climate Change)

Período documentado: 2023-06-01 hasta 2025-11-30

Resumen del contexto y de los objetivos generales del proyecto

Climate change is one of the key societal challenges of our generation, affecting every country, every firm, and every person on this planet for decades to come. More than half of carbon emissions arise from bank-dependent sectors of the economy; and a large part of renewable energy production is financed by banks. The banking sector plays a crucial role for lending to firms and households, for the issuance of securities, for project financing, and for mergers and acquisitions. The goal of this project is to provide a fundamental understanding of the role of the banking sector in addressing climate change. The project takes a holistic view and analyzes several channels through which the banking sector plays a central role in addressing climate change, ranging from laws and regulations, governance mechanisms in the banking sector, and spillovers between public markets and banks.

Trabajo realizado desde el comienzo del proyecto hasta el final del período abarcado por el informe y los principales resultados hasta la fecha

During the first half of the project, much work focused on understanding how corporations react to pressure to cut carbon emissions, and how bank financing affects firms’ carbon emissions. One of the main achievements was to document that firms’ key strategies to cut emission under pressure is to divest their most polluting assets to firms that face less scrutiny by investors, the public, or the banking sector. The results were obtained by collecting an entirely new data set on corporate divestments. This result calls into question a large existing literature that has used firm-level carbon emissions by publicly listed firms to understand the implications of various regulatory and investor actions. Our results call into question most of these prior findings, and suggest that financial markets might be less effective in cutting global carbon emissions than prior research suggests. We also document that self-commitments in the banking sector have little to no effect on carbon emissions, thus calling for more robust regulation instead of voluntary self-commitments.

Further work has looked into the determinants of green investment by household, in particular investments into heat pumps and electric vehicles. Using the near universe of the Danish population, we find that financial constraints play are a crucial factor that explain green household investments. These results open up pathways for targeted support mechanisms that can help to speed up decarbonization in the transport and housing sector.

Avances que van más allá del estado de la técnica e impacto potencial esperado (incluida la repercusión socioeconómica y las implicaciones sociales más amplias del proyecto hasta la fecha)

The research conducted so far has advanced the state of the art in sustainable finance in various ways. We hope that the importance of firm’s divestment strategies will gain traction in sustainable finance going forward, and will become the norm for any researcher that aims to identify the effect of financial market interventions on global carbon emissions. If we establish this as a new norm, a whole literature will benefit from providing more precise estimates of the impact of sustainably finance on climate change.

We have also provided a new approach to establish whether lending activities advance or hinder climate change mitigation. This approach leverages project financing data. Project financing is an important market for green and brown investment worldwide, financing the majority of coal, gas, solar, and wind projects. This sector has been largely overlooked so far, and our work on self-commitments provides guidance how to leverage this key sector for research on sustainable finance.