Measurement and Effects of Bank Exit Policies

61 Pages Posted: 29 Apr 2022 Last revised: 11 Nov 2024

See all articles by Daniel Green

Daniel Green

Harvard Business School

Boris Vallee

Harvard Business School - Finance Unit

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

Suggested Citation

Green, Daniel and Vallee, Boris, Measurement and Effects of Bank Exit Policies (January 13, 2024). Available at SSRN: https://ssrn.com/abstract=4090974 or http://dx.doi.org/10.2139/ssrn.4090974

Daniel Green (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Boris Vallee

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

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