The E-axes Forum on Climate Change, Macroeconomics, and Finance

Parinitha Sastry

“Business as Usual: Bank Climate Commitments, Lending and Engagement”

Young Scholars' Webinar on Climate Finance and Economics

From the Abstract: This paper studies the impact of voluntary climate commitments by banks on their lending activity. We use administrative data on the universe of bank lending from 19 European countries. There is strong selection into commitments, with increased participation by the largest banks and banks with the most pre-existing exposure to high-polluting industries. Setting a commitment leads to a boost in a lender’s ESG rating. Lenders reduce credit in sectors they have targeted as high priority for decarbonization. However, climate-aligned banks do not change their lending or loan pricing differentially compared to banks without climate commitments, suggesting they are not actively divesting. We can reject that climate-aligned lenders divest from firms in targeted sectors by more than 2.6%. Firm borrowers are no more likely to set climate targets after their lender sets a climate target, which casts doubt on active engagement by lenders. These results call into question the efficacy of voluntary commitments.

Moderator:

Alissa Kleinnijenhuis
Visiting Assistant Professor of Finance, Cornell SC Johnson College of Business, Cornell University

Organizing Committee

Michael Barnett, Arizona State University
Diego Känzig, Northwestern University
Alissa M. Kleinnijenhuis, Cornell University
Ishita Sen, Harvard University

Parinitha Sastry

Parinitha (Pari) Sastry is currently an Assistant Professor of Finance at Columbia Business School. Her research is at the intersection of climate finance, financial intermediation, and real estate. Prior to beginning her academic position, she spent a year at the Department of Treasury as a climate finance postdoctoral fellow. She received her PhD in finance from MIT, and her BA in economics-mathematics from Columbia University. Prior to her PhD, she worked at the Federal Reserve Bank of New York, the Brookings Institution, and the Task Force on Climate-Related Financial Disclosures.

Paper and slides

Business as Usual: Bank Net-Zero Commitments, Lending, and Engagement

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