Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

65 Pages Posted: 15 May 2018

See all articles by Kathrin de Greiff

Kathrin de Greiff

Swiss Finance Institute; University Zurich

Manthos D. Delis

Montpellier Business School

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 2 versions of this paper

Date Written: May 2018

Abstract

Does neglecting the possibility that fossil fuel reserves become "stranded" result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. 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 non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally 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, Q50

Suggested Citation

de Greiff, Kathrin and Delis, Manthos D. and Ongena, Steven R. G., Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans (May 2018). CEPR Discussion Paper No. DP12928. Available at SSRN: https://ssrn.com/abstract=3178099

Kathrin de Greiff (Contact Author)

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

Manthos D. Delis

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Steven R. G. Ongena

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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