How does regional carbon transition affect loan pricing? Evidence from China

Existing research on carbon risks mainly focuses on firm-level transition risks and regional physical risks, while the impact of regional transition risks on banks has been neglected. This study fills this gap by revealing the pricing effect of regional carbon transition risk in bank lending. Using syndicated loan data, we find a significant premium in loans in high carbon emission areas after the Paris Agreement. Moreover, the regional carbon risk premium is relatively low in areas with higher product marketization, lower legalization, and higher forest coverage levels. Our evidence suggests that banks have considered regional carbon transition risk.