## Carbon Risk in Loan Pricing: Commitment Channels and Real Effects

_IMF Working Papers, December 5, 2025_

## Source details

**Canonical URL:** [Carbon Risk in Loan Pricing: Commitment Channels and Real Effects](https://www.imf.org/en/publications/wp/issues/2025/12/05/carbon-risk-in-loan-pricing-commitment-channels-and-real-effects-571321)

## Other formats

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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

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### 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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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2025/12/05/carbon-risk-in-loan-pricing-commitment-channels-and-real-effects-571321_