Template-Type: ReDIF-Article 1.0

Author-Name: Gabor Szigel
Author-Workplace-Name: OTP Bank
Author-Email: Gabor.Tamas.Szigel@otpbank.hu


Title: Carbon Intensity of Banks' Loan Portfolio - A Good Basis for Comparison in Case of Low-Income Countries?

Abstract: In recent years, more and more credit institutions have been publishing the financed
carbon footprint of their loan portfolio, enabling comparisons across institutions,
for which investors and supervisors tend to use the carbon intensity of portfolios
expressed as a proportion of the financed carbon footprint-to-total loan volumes.
In this article, it is argued that such comparisons are unfair to low-income countries
with low price levels, as they show the same activity as being more "carbonintensive"
in a low-income country than in a high-income country. The magnitude
of such distortions can be significant, amounting to as much as 3 to 7-fold just within
the European Union itself. As differences resulting from price levels do not actually
represent differences in the carbon intensity of individual countries' real economy
and are also not an "own choice" of these countries (but rather a consequence of the
Balassa-Samuelson effect), it is argued that the comparison of carbon intensity of
different banks' loan portfolios should be conducted using purchasing power parity
adjustments - if not necessarily for investors, at least in the practice of financial
supervisory authorities.

Classification-JEL: G21, M41, Q56, Q51, L52, F37, C81, C82
Keywords: carbon accounting, carbon footprint of banks, purchasing power parity
Pages: 83-102
Volume: 21
Issue: 4
Year: 2022
File-URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-21-4-st3-szigel.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:21:y:2022:i:4:p:83-102