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Climate policy and brown risk premium on bank loans: Direct vs. indirect emissions

Author

Listed:
  • Tolkki, Ville
  • Junttila, Juha
  • Sahlström, Petri

Abstract

The paper studies how climate policy affects the brown risk premium in bank lending, distinguishing between Scope 1 (direct) and Scope 2 (energy-related) emissions using loanlevel data on new variable-rate corporate loans from 2019-2024 matched with constructed measures of Scope 1 and Scope 2 emission intensity. Exploiting the Finnish Climate Act of 2022, which set a binding 2035 net-zero target, we show that Scope 1 emissions are priced throughout the sample, indicating pre-existing risk pricing, while Scope 2 emissions are priced mainly after the policy, suggesting an expansion of priced transition risks. We further isolate periods of acute energy market stress and find that banks temporarily deprioritize carbon risk during energy crisis months. Estimated carbon premia are economically meaningful, but we do not find strong evidence that pricing differs systematically between large and small firms.

Suggested Citation

  • Tolkki, Ville & Junttila, Juha & Sahlström, Petri, 2026. "Climate policy and brown risk premium on bank loans: Direct vs. indirect emissions," Bank of Finland Research Discussion Papers 5/2026, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:342401
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    File URL: https://www.econstor.eu/bitstream/10419/342401/1/1971439819.pdf
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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