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A simple indicator for climate-related transition risks of bank lending

Published online by Cambridge University Press:  17 February 2025

László Bokor Open the ORCID record for László Bokor [Opens in a new window]
László Bokor*
Affiliation:
Sustainable Finance Department, Magyar Nemzeti Bank, Budapest, Hungary
*
Corresponding author: László Bokor; Email: [email protected]
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Abstract

We propose a simple indicator for the climate-related transition risks of bank lending based on transaction-level loan data. The underlying idea is that the higher the greenhouse gas intensity of an economic activity, and thus that of the debtor involved, the higher its transition risk. The relationship is mapped through two min-max-normalised functions, each of which represents a scenario for the future characteristics of the green transition. The concept is versatile and applicable to different dimensions at different levels of aggregation (banking system or individual banks, whole economy or specific sectors). As a practical example, we discuss the proposed indicator using Hungarian data for the period 2012–2020.

Keywords

bank lendingclimate changegreenhouse gas intensityrisk indicatortransition risk

JEL classification

Q55: Technological Innovation Q54: Climate • Natural Disasters and Their Management • Global Warming C43: Index Numbers and Aggregation Q56: Environment and Development • Environment and Trade • Sustainability • Environmental Accounts and Accounting • Environmental Equity • Population Growth Q58: Government Policy G21: Banks • Depository Institutions • Micro Finance Institutions • Mortgages
Type
Research Article
Information
Environment and Development Economics , First View , pp. 1 - 18
Copyright
Copyright © The Author(s), 2025. Published by Cambridge University Press

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