Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank loans

Do banks price the risk of stranded fossil fuel reserves? To address this question, we hand collect global data on corporate fossil fuel reserves from 2002 to 2016, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms — along their climate policy exposure — to other firms. We find that banks price climate policy exposure, especially after 2015. We also uncover that our main effect further increases for loans with longer maturity, that loan size to fossil fuel firms increases, and that ‛Green’ banks also charge higher loan rates to fossil fuel firms.

• Publication year

  2024

• Venue

  Social Science Research Network

• Publication date

  2024-02-01

• Fields of study

  Not labeled

• Identifiers
  DOI 10.2139/ssrn.3451335
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• Loan size to fossil fuel firms increases, and green banks also charge higher loan rates to fossil fuel firms.

  Confidence 0.92

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• The climate-policy pricing effect is larger for loans with longer maturity.

  Confidence 0.93

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• Bank loan rates price climate policy exposure, and the pricing effect becomes especially strong after 2015.

  Confidence 0.97

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• Global fossil fuel reserve data from 2002 to 2016 were hand-collected and matched with syndicated loans for the analysis.

  Confidence 0.96

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review

• climate policy exposure

  risk measures

  A measure of how much a fossil fuel firm is exposed to climate policy risk.

  Aliases: climate-policy exposure

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• fossil fuel reserves

  resource categories

  Corporate holdings of coal, oil, or gas reserves used to identify fossil fuel firms in the sample.

  Aliases: corporate fossil fuel reserves

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• green banks

  banks

  Banks characterized in the paper as environmentally oriented or green, used as a lender subgroup.

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• loan maturity

  loan terms

  The length of time until a loan must be repaid.

  Aliases: maturity

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• loan rates

  pricing variables

  The interest rate charged on a bank loan, used as the main pricing outcome.

  Aliases: loan pricing

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• loan size

  loan terms

  The principal amount borrowed in a loan contract.

  Aliases: loan amount

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• stranded fossil fuel reserves

  risk concepts

  Fossil fuel reserves that may lose economic value because of climate policy or the energy transition.

  Aliases: stranded reserves

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review
• syndicated loans

  financial instruments

  Loans provided by a group of lenders to a single borrower and used here as the banking outcome data.

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewAK (4715169a40) review

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