Conference Agenda
Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
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Daily Overview |
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Climate Finance and Transition Risk Location: B128 Session Chair: Patrick Zeitinger, Technical University of Munich | |
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Do banks overestimate green credit risk? Evidence from SME lending 1: Technical University of Munich, Germany; 2: ProCredit Holding AG; 3: The World Bank Group Using a novel ten-year panel of over 43,000 small and medium-sized enterprises (SMEs) rated under the same risk model across 11 countries, we find that banks systematically overestimate the default risk of green SME borrowers. This credit risk misperception arises because credit models assign identical expected default probabilities to green and non-green borrowers, yet green SMEs exhibit a 13.7% lower default hazard than non-green peers at the same risk rating. Exploiting granular use-of-proceeds data absent from prior work, we show this effect is driven by energy-related investments: renewable energy (52%) and energy efficiency (16%) are associated with substantially lower default hazard, while other green investment categories show no significant effect. This pattern is consistent with a hedging mechanism against energy cost volatility and survives within-firm identification, matching on observables, and country-level subsamples. Incorporating green investment types into bank credit risk models would improve market efficiency, reduce the cost of capital for energy-related green SME borrowers, and thereby accelerate the decarbonization of the SME segment | |