https://www.sciencedaily.com/releases/2021/05/210517105725.htm

According to the study published in a special issue on climate risks and financial stability of the Journal of Financial Stability, banks and their expectations about climate-related risks -- and especially climate transition risk stemming from a disorderly introduction of climate policies -- play an important role in the successful transition to a low-carbon economy, as lower credit costs could make green (low-carbon) investments more competitive, allowing such investments to be made at scale. Depending on the timing and structure of implementation, climate policies could however also lead to a reduced profitability of brown (carbon intensive) firms, in turn leading to unanticipated loan defaults by such companies. This could pose a credit-risk for banks and investors, potentially threatening financial stability and leading to a credit crunch that would also affect green firms negatively, thus putting the success of an orderly low-carbon transition at risk.

The authors explain that they set out to assess the role of banks' expectations about climate-related risks -- climate sentiments -- in fostering or hindering the low-carbon transition.