Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans
61 Pages Posted: 17 Feb 2018 Last revised: 15 Jul 2021
Date Written: April 21, 2019
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 banks price climate policy exposure, especially after 2015. We also uncover that our main effect further increases for loans with longer maturity, that loan size to fossil fuel firms increases, and that “Green” banks also charge higher loan rates to fossil fuel firms.
Keywords: Environmental policy; Climate policy risk; Loan pricing; Loan maturity; Fossil fuel firms; Stranded assets
JEL Classification: G2, Q3, Q5
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