Being stranded with fossil fuel reserves? climate policy risk and the pricing of bank loans

Abstract

being stranded with fossil fuel reserves? climate policy risk and the pricing of bank loans manthos d. delis, kathrin de greiff and steven ongena abstract do banks price the risk of stranded fossil fuel reserves? to address this question, we hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms — along their climate policy exposure — to non-fossil fuel firms. we find that before 2015 banks did not price climate policy exposure. after 2015, however, our results show an increase in the cost of credit by 16 basis points for a fossil fuel firm with mean proved reserves, implying an increase in the total cost of borrowing for the mean loan by usd 1.5 million. we also provide some evidence that “green banks” charge marginally higher loan rates to fossil fuel firms. keywords: environmental policy; climate policy risk; loan pricing; loan maturity; carbon bubble; fossil fuel firms; stranded assets jel classification number: g2; q3; q5 contact details: manthos d. delis, montpellier business school, montpellier research in management. email: m.delis@montpellier-bs.com kathrin de greiff, university of zurich and swiss finance institute. email: kathrin.degreiff@bf.uzh.ch steven ongena, university of zurich, swiss finance institute, ku leuven and cepr. email: steven.ongena@bf.uzh.ch we are grateful to kristian blickle, patrick bolton, bob buhr, yannis dafermos, taran faehn, iftekhar …

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