This paper investigates the influence of existing financial regulations on investments in low-carbon assets. Using data from the European Banking Authority, the authors demonstrate that current financial accounting frameworks may inadvertently disincentivize investments in low-carbon sectors by requiring nearly double the loan loss provisions for such lending compared to high-carbon sectors. This bias stems from risk estimates based on historical data, which has consistently shown lower risk for the oil and gas sector than for renewable energy. The authors suggest this bias could be present in other model-based regulations, potentially hindering the funding of green investments.

Matteo Gasparini, Matthew C. Ives, Ben Carr, Sophie Fry, Eric Beinhocker