Sustainable Banking

Abstract

This paper reviews the literature on banks, climate change, and the global shift towards a low-carbon economy. I first examine the contribution of banks to climate change mitigation, with an emphasis on banks’ roles in financing green innovation and the diffusion of low-carbon technologies. I then review whether banks have begun to recalibrate their credit supply in response to the transition and physical risks of global warming. Here, the focus is on empirical work analysing how sea level rise and the increased frequency and intensity of hurricanes, floods, droughts, and wildfires are impacting banks’ balance sheets and operations. Last, I discuss several related topics: credit access and climate change adaptation; carbon arbitrage and greenwashing; and green financial regulation and credit guidelines. The paper concludes by sketching a few promising avenues for future research on sustainable banking.

Keywords: Sustainable banking, climate finance, climate change, global warming, green transition

JEL Classification: F30; F64; G21; O44; Q01; Q32; Q54