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Commercial banks in the eurozone that portray themselves as green are doing the most new lending to big polluters, according to a blog published by the European Central Bank on Wednesday.
The article, timed to coincide with this week’s COP28 climate summit in Dubai, said lenders guilty of “greenwashing” had granted about 4 per cent more new loans each year than the average bank to companies doing most harm to the environment.
The publication is part of the central bank’s efforts to pressure commercial lenders it supervises to better their climate disclosures and risk assessments.
The authors said they aimed to “shine a light on a serious disconnect” by comparing the “green” disclosures of 96 banks operating in the eurozone and how much new lending they did with companies in “brown” sectors — those that emit high volumes of carbon dioxide — from 2014 to 2020, using confidential ECB data on individual loans.
“Banks which portray themselves as more environmentally conscious lend more than others to brown industries,” said the blog, written by four economists. One of the authors is a senior team direct economist in the ECB’s financial research division; the other three are from US and European universities.
They found little evidence to uphold the argument of some banks that their loans helped brown borrowers to transition to greener technologies or business models.
“The lending policies of banks with more environmental disclosures would not suggest greenwashing if these banks financed the transition of brown borrowers to lower emission technologies,” they wrote.
But they said such high polluters “do not end up decreasing their emissions or commit to voluntary emission targets” and they found little evidence that they invest more to shift into greener technologies.
“Our research suggests that the discrepancies between banks’ environmental disclosures and their lending practices arise because banks are reluctant to disrupt established lending relationships with larger carbon footprint borrowers,” they said.
Banks may be reluctant to stop lending to polluting companies to “keep the borrowers alive and to avoid realising losses on their balance sheets”, the blog added, pointing out that such companies could end up “in distress if their banking relationship were terminated”.
The blog concluded there were “insufficient incentives for banks to change their lending policies” and called on the ECB to step up its efforts to reach “greater transparency and standardisation of sustainability disclosures” by lenders.
The economists presented their initial findings at an ECB conference in May, which included some positive points about banks. The research said commercial banks that disclosed more about green policies also issued more green bonds and agreed fewer new lending relationships with brown borrowers than average. Their research also found banks’ environmental disclosures increased 27 per cent in the six years to 2020.
The researchers analysed 1,397 documents published by eurozone banks and their subsidiaries in the six-year period to check the frequency with which they used keywords, such as renewables, carbon and emissions.
They also assessed which borrowers were brown based on a ranking of carbon emissions in each sector from Eurostat, data on carbon emissions of companies from Urgentem and information from the ECB’s AnaCredit loan registry.
