Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans

81 Pages Posted: 17 Feb 2018 Last revised: 10 Dec 2020

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Kathrin de Greiff

Swiss Finance Institute; University Zurich

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 21, 2019

Abstract

Do banks price the risk of stranded fossil fuel reserves? To address this question, we hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms — along their climate policy exposure — to other firms. We find that before 2015 banks did not price climate policy exposure. After 2015, however, our results show a significantly higher cost of credit for fossil fuel firms exposed to stricter climate policy, particularly along recorded proved reserves over assets. “Green” banks also charge higher loan rates to fossil fuel firms.

Keywords: Environmental policy; Climate policy risk; Loan pricing; Loan maturity; Carbon bubble; Fossil fuel firms; Stranded assets

JEL Classification: G2, Q3, Q5

Suggested Citation

Delis, Manthos D. and de Greiff, Kathrin and Ongena, Steven R. G., Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans (April 21, 2019). Swiss Finance Institute Research Paper No. 18-10, Available at SSRN: https://ssrn.com/abstract=3125017 or http://dx.doi.org/10.2139/ssrn.3125017

Manthos D. Delis

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Kathrin de Greiff

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University Zurich ( email )

Schönberggasse 1
Zurich
Switzerland

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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