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Do banks price firms’ climate transition risks?

Author

Listed:
  • Wildmer Daniel Gregori
  • Daniel Abreu
  • Laura Bartolomeu
  • Fotios Kalantzis

Abstract

This study examines whether banks incorporate climate transition risks into loan pricing for non-financial firms in Portugal, using loan-level data from 2018 to 2023. The results show that banks do price climate transition risks, with firms exhibiting greater emission intensity facing higher interest rates and smaller loan amounts, indicating both a pricing and credit rationing response to environmental risk. Public support measures influence how climate risk is transmitted, highlighting the potential relevance of policies with explicit environmental criteria. When accounting for the emission reduction efforts that firms are required to undertake under the current policies scenario, banks become more sensitive to firms’ emission levels when pricing interest rates. This suggests that banks incorporate, to some extent, expected future adjustment costs into their lending decisions. Coordinated government and prudential policies may help channel credit to low-emission and transformative projects, fostering the green transition while safeguarding financial stability.

Suggested Citation

  • Wildmer Daniel Gregori & Daniel Abreu & Laura Bartolomeu & Fotios Kalantzis, 2026. "Do banks price firms’ climate transition risks?," Working Papers w202603, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202603
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    File URL: https://www.bportugal.pt/sites/default/files/documents/2026-04/WP202603.pdf
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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