The impact of climate risk on credit supply to private and public sectors: an empirical analysis of 174 countries

Abstract

In recent years, risk has been increasingly a long-term environmental problem that cannot be underestimated due to its tremendous impacts on various sectors including banking sector. Accordingly, the credit supply to private and public sectors is affected by the increased climate risk. In order to examine the climate risk effect from an international comparison, this paper empirically investigates the impact of climate risk on credit supply by using a sample of 174 countries during 2000–2019 from the perspective of the difference between private and public sectors. The results show that climate risk has a significant negative effect on the credit supply to private sector and a positive effect on that to the public sector. Further, we provide new evidence that the climate risk effect has a more significant effect on the private and public sector credit supply in the high-income countries than that in the low-income countries, suggesting a quick risk contagion in the high-income countries.

Do Natural Disasters Reduce Loans to the More CO2-Emitting Sectors?

“…Third, natural disasters may lead to the reallocation of loans from more polluting to less polluting industries. The authors of [15] study loan allocation around the world, and they show that natural disasters have a significant negative effect on the credit supply to the private sector and a positive effect on that to the public sector. In addition, natural disasters caused by global warming increase the direct costs faced by banks due to climate change relative to transition risks, and they lead to increased lending that accelerates the transition to a greener economy.…”