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Carbon Intensity of Banks' Loan Portfolio - A Good Basis for Comparison in Case of Low-Income Countries?

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Listed:
  • Gabor Szigel

    (OTP Bank)

Abstract

In recent years, more and more credit institutions have been publishing the financed carbon footprint of their loan portfolio, enabling comparisons across institutions, for which investors and supervisors tend to use the carbon intensity of portfolios expressed as a proportion of the financed carbon footprint-to-total loan volumes. In this article, it is argued that such comparisons are unfair to low-income countries with low price levels, as they show the same activity as being more "carbonintensive" in a low-income country than in a high-income country. The magnitude of such distortions can be significant, amounting to as much as 3 to 7-fold just within the European Union itself. As differences resulting from price levels do not actually represent differences in the carbon intensity of individual countries' real economy and are also not an "own choice" of these countries (but rather a consequence of the Balassa-Samuelson effect), it is argued that the comparison of carbon intensity of different banks' loan portfolios should be conducted using purchasing power parity adjustments - if not necessarily for investors, at least in the practice of financial supervisory authorities.

Suggested Citation

  • Gabor Szigel, 2022. "Carbon Intensity of Banks' Loan Portfolio - A Good Basis for Comparison in Case of Low-Income Countries?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(4), pages 83-102.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:4:p:83-102
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    References listed on IDEAS

    as
    1. Kravis, Irving B & Heston, Alan W & Summers, Robert, 1978. "Real GDP per Capita for More Than One Hundred Countries," Economic Journal, Royal Economic Society, vol. 88(350), pages 215-242, June.
    2. Ivan Faiella & Luciano Lavecchia, 2022. "The carbon content of Italian loans," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistics for Sustainable Finance, volume 56, Bank for International Settlements.
    3. Pal Peter Kolozsi & Sandor Ladanyi & Andras Straubinger, 2022. "Measuring the Climate Risk Exposure of Financial Assets - Methodological Challenges and Central Bank Practices," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(1), pages 113-140.
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    More about this item

    Keywords

    carbon accounting; carbon footprint of banks; purchasing power parity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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