Carbon Risk in Loan Pricing: Commitment Channels and Real Effects
IMF Working Papers, December 5, 2025
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- Carbon Risk in Loan Pricing: Commitment Channels and Real Effects
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Bibliographic details
- Authors: Yao Dong, Martina Hengge, Fabian Valencia, Richard Varghese
- Published: December 5, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229026154.001
Main findings
- Financial institutions charge higher loan risk spreads to borrowers with a higher carbon intensity, documenting a carbon risk premium.
- The carbon premium varies with environmental commitments of borrowers and lenders:
- Borrowers signaling commitments—emission targets, emission disclosures, or green loans—receive discounts that decline with increasing carbon intensity.
- Committed lenders charge higher interest rates to carbon-intensive borrowers.
- Commitments affect real economic outcomes:
- Increase corporate investment.
- Increase R&D expenditures.
- Reduce precautionary liquidity holdings.
- The carbon premium in U.S. loan markets intensifies during periods of monetary tightening, consistent with the risk-taking channel of monetary policy.
- The carbon premium is time varying and has declined in recent years.
Data and scope
- Combines syndicated loan data with firm-level carbon emissions.
- Focus: U.S. corporate loans.
Policy-relevant implications
- Lender and borrower environmental commitments influence both financial pricing and real corporate behavior, suggesting policy and disclosure frameworks can affect real-economy outcomes via loan markets.
- Monetary policy episodes matter for the transmission of carbon risk into loan pricing, indicating interaction between macroprudential/monetary policy and climate-related financial risk.
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- Working Paper