How Banks’ Tasks Regarding Their Financed Carbon Footprint is Misunderstood by EU Regulation

Szigel, Gábor (2026) How Banks’ Tasks Regarding Their Financed Carbon Footprint is Misunderstood by EU Regulation. FINANCIAL AND ECONOMIC REVIEW, 25 (1). pp. 151-163. ISSN 2415-9271 (print); 2415–928X (online)

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Abstract

Regulation in the EU makes banks responsible for the greenhouse gas (GHG) emissions of their borrowers and thus tries to use them as leverage to nudge polluting industries into the carbon-free transition. For lack of better alternatives, this occurs based on metrics that are neither reliable nor robust. While welcomed by the industry, the European Commission’s recent omnibus packages aimed at simplifying sustainability legislation will also probably not change that situation materially. Although it is perhaps well-intended, this approach assigns banks a task which they are not qualified for. It is unsurprising that the entire initiative has resulted in bureaucratic formalities in banks’ reports rather than substantive progress. It is not the best way to get credit institutions engaged in the green transition. Instead, banks should focus on what they are best at: lending, and more specifically, on lending for projects that advance the carbon-neutral transformation of the economy.

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