Measurement and Effects of Bank Exit Policies
61 Pages Posted: 29 Apr 2022 Last revised: 11 Nov 2024
Date Written: January 13, 2024
Abstract
We study whether exit policies by financial institutions have financial and real consequences on the firms they target, using bank coal exit policies as a laboratory. In contrast to theories assuming high capital substitutability, we find large effects of these policies. Bank exit policies negatively affect both the financing and operation of coal assets. Substitution to other sources and providers of capital appears to be limited. Coal power plants owned by firms exposed to bank exit policies are more likely to be retired, translating into lower CO2 emissions. Exit policies have reduced coal CO2e emissions by an estimated one gigaton.
Keywords: ESG, climate finance, divestment, exit policy, banking, sustainable investing, climate commitments
JEL Classification: G21, G19, G32, G50
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