Banks that outwardly value the environment and climate are likely to provide the most loans to environmentally harmful industries.
This is a surprising finding from a study by economists that the European Central Bank (ECB) presented in a blog post on its website on Wednesday. “The results shed light on a serious discrepancy: banks that portray themselves as more environmentally conscious lend more to brown industries than others,” the authors write.
The results are based on examining approximately 1,400 investor reports and communications from major banks in the eurozone and comparing them to credit data from 2014 to 2020.
“Are banks that seem more concerned about the environment engaged in greener lending? Not really, as our research shows,” the authors write. The researchers found that financial institutions that disclose their environmental commitment more extensively than others tend to specialize in lending to brown – i.e. environmentally damaging – industries.
Discrepancy between communication and lending
Banks with greater exposure to this area would be under greater pressure to disclose their environmental strategies. “The core of our research is the discrepancy between the way banks talk about their environmental intentions and the way they lend money.”
Established customer relationships do not like to be questioned
According to the researchers, financial institutions may be reluctant to question established customer relationships with brown companies. There are also fears that withdrawing support could cause financial problems for these companies, which would in turn result in losses on bank balance sheets. Banks may therefore prefer to extend their loans to keep such companies afloat.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
