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Can Banks Sustain the Growth in Renewable Energy Supply? An International Evidence

Author

Listed:
  • Tonmoy Choudhury

    (Edith Cowan University)

  • Muhammad Kamran

    (Edith Cowan University)

  • Hadrian Geri Djajadikerta

    (Edith Cowan University)

  • Tapan Sarker

    (Griffith University)

Abstract

Confronted with rapidly deteriorating climate change resulting from the use of fossil fuels, the transition to renewable energy has now become imminent. But this shift to renewable energy requires massive financial support from banks, affecting their default risk. Responding to the growing environmental concerns and reluctance among banks to increase their exposure in the renewable energy sector, this study presents unique and novel insights on the relationship between the share of renewable energy in the total energy supply of a country and banking risk. To this end, we obtained data for a sample of 80 international banks from 20 countries in the 2006–2017 period. On this data, we implemented a two-stage least squares (2SLS) regression analysis model. Our findings reveal that increasing the share of renewable energy in the total energy supply of a country significantly reduces banks’ default risk. To check the robustness of the results, we performed several tests which also endorsed the validity of our results.

Suggested Citation

  • Tonmoy Choudhury & Muhammad Kamran & Hadrian Geri Djajadikerta & Tapan Sarker, 2023. "Can Banks Sustain the Growth in Renewable Energy Supply? An International Evidence," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(1), pages 20-50, February.
    • Handle: RePEc:pal:eurjdr:v:35:y:2023:i:1:d:10.1057_s41287-021-00492-z
    DOI: 10.1057/s41287-021-00492-z
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