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Going green or losing edge: A global investigation into the role of carbon risk on banks' green investments

Author

Listed:
  • Kiran, Madiha
  • Alnori, Faisal
  • Rabbani, Mustafa Raza
  • Cepni, Oguzhan

Abstract

This study examines the impact of carbon risks on green investments in 1501 banks across 106 countries from 2002 to 2023. Building on previous studies examining the effects of carbon risks on financial decisions and portfolio strategies, this study investigates the impact of carbon risk exposure on sustainable lending practices. We find strong evidence that carbon risks are positively associated with banks' green investments. The heterogeneity analysis reveals that carbon risk drives an increase in green investment among banks, regardless of whether their R&D expenditure is high or low. Furthermore, we extend our analysis to five global regions and find that carbon risk significantly boosts green investment among banks. The results are robust to alternative estimation techniques and considering an alternative measure of carbon risk (e.g., Carbon intensity). The outcomes of this study offer unique and new insights for stakeholders and policymakers.

Suggested Citation

  • Kiran, Madiha & Alnori, Faisal & Rabbani, Mustafa Raza & Cepni, Oguzhan, 2026. "Going green or losing edge: A global investigation into the role of carbon risk on banks' green investments," Economics Letters, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:ecolet:v:258:y:2026:i:c:s016517652500583x
    DOI: 10.1016/j.econlet.2025.112746
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    References listed on IDEAS

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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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