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Do banks price environmental risk? Only when local beliefs are binding!

Journal of Financial Stability 2026 86, 101570 open access
<div> What is the impact on the cost of bank credit of local corporate environmental and biodiversity exposure? At loan origination, banks charge higher rates to firms creating more environmental damage, especially when they are lowly capitalized, and when the firms operate in “greener” states with lower climate denial and more negative environmental news. Biodiversity risk is also priced, especially when public interest in it intensifies. Following the Trump withdrawal from Paris, banks modulate their environmental risk pricing in “browner” states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes. </div>