Banking and Climate Change

Introduction

Climate change is one of the key societal challenges of our generation, affecting every country, every firm, and every person on this planet for decades to come. More than half of carbon emissions arise from bank-dependent sectors of the economy, and a large part of renewable energy production is financed by banks. The banking sector plays a crucial role in lending to firms and households, in the issuance of securities, in project financing, and in mergers and acquisitions. Yet, the role of banks in addressing climate change is not yet well understood.

Project Goal

The goal of this project is to provide a fundamental understanding of the role of the banking sector in addressing climate change. The project will take a holistic view and analyze several channels through which the banking sector plays a central role in addressing climate change:

1. The role of laws and regulations
2. The role of governance mechanisms in the banking sector
3. The role of state-owned banks
4. The interaction between public markets and banks

Research Agenda

I pursue this research agenda in two parts:

1. The first part focuses on the role of the banking industry for firms.
2. The second part focuses on the role of the banking industry for households.

Both parts will analyze key agency and financial constraints that can impede the provision of financing for long-term investments that are at the heart of climate finance.

Expected Outcomes

This project will shape our understanding of the role of the banking sector in addressing climate change. It will:

• Empirically analyze key channels
• Advance the methodological toolkit that can serve as the basis for future research in this area
• Create unparalleled new data sets tailored to analyzing the role of the banking sector in addressing climate change

The results of this project can help academics, regulators, policymakers, and society to understand and address one of the key challenges of our times.