Euro zone banks tilting loan pricing towards greener firms, ECB blog

Impact of Climate Performance on Loan Pricing

FRANKFURT (Reuters) -Euro zone banks are offering loans on more favourable terms to companies with a better climate performance and may be punishing polluters, according to a blog post published by the European Central Bank on Monday.

Banks' Climate Risk Strategies

The ECB has been pushing banks for years to disclose and manage their climate risk, using a range of tools like binding supervisory orders, fines and collateral repricing.

Survey Insights on Credit Standards

The finding is significant as the European economy relies heavily on bank finance for investment, in contrast with the United States, where capital markets are more widely used to generate funding.

Trends in Mortgage Financing

"Banks offer a 'climate discount' in their risk assessment to green firms and those in transition," the blog said, analysing responses in the ECB's quarterly Bank Lending Survey. "Also, they seem to charge a 'climate risk premium' for high-emitting firms."

A net 20% of banks surveyed said that they expect to ease credit standards for green firms and 13% plan to do the same for companies in transition. Meanwhile a net 35% said that climate risk would result in tighter lending conditions for high-emitting companies.

Firms facing physical risk from climate change can also expect more expensive financing but transition risk is not expected to have meaningful impact.

A similar trend is happening for mortgages.

High-energy-performance buildings have an increasingly dampening impact on credit standards and banks also see increasing demand to finance such units.

(Reporting by Balazs Koranyi; Editing by Emelia Sithole-Matarise)