Banks’ climate commitments and credit to carbon-intensive industries: new evidence for France

Abstract

ABSTRACT I investigate whether and how banks align green words, in terms of their commitments to tackle climate change, with deeds in terms of credit allocation across carbon-intensive industries in France. I use data on bank credit exposures to large versus small firms across 49 industries for the main banking groups operating in France, which I merge with information on industries’ greenhouse gas emission intensities and a score for banks’ self-reported climate-related commitments over 2010–2017. I find evidence that higher levels of self-reported climate commitments by banks are associated with a slower growth of lending to large firms in the five most carbon-intensive industries. However, lending to small and medium-sized enterprises across more or less carbon-intensive industries remains unrelated to banks’ commitments to green their business. These findings suggest that devising an appropriate carbon reporting framework for small firms is likely to enhance the decarbonization of bank lending. Key policy insights Over 2010–2017, in France, banking groups that self-report to CDP as being more committed to climate change adaptation and mitigation tend to cut their lending relatively faster to domestic firms in the five most carbon-intensive industries. This pattern is entirely driven by the dynamics of banks’ credit to large corporations, which in France are legally bound to regular carbon reporting. In contrast, banks’ climate commitments do not seem to affect their lending to domestic small and medium-sized enterprises(SMEs) in carbon-intensive industries. Overall, the results support recent calls for an extension of mandatory carbon disclosure regulations to SMEs.