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

75 Pages Posted: 11 Sep 2019

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: September 10, 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 non-fossil fuel firms. We find that before 2015 banks did not price climate policy exposure. After 2015, however, our results show an increase in the cost of credit by 16 basis points for a fossil fuel firm with mean proved reserves, implying an increase in the total cost of borrowing for the mean loan by USD 1.5 million. 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;

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 (September 10, 2019). EBRD Working Paper No. 231. Available at SSRN: https://ssrn.com/abstract=3451335 or http://dx.doi.org/10.2139/ssrn.3451335

Manthos D. Delis (Contact Author)

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

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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