Bank lending and the environment: policies and opportunities

Abstract

Recently bankers have come to realise that banking operations, especially corporate lending, affect and are affected by the natural environment and that consequently the banks might have an important role to play in helping to raise environmental standards. Although the environment presents significant risks to banks, in particular environmental credit risk, it also perhaps presents profitable opportunities. Stricter environmental regulations have forced companies to invest in environmentally friendly technologies and pollution control measures and in turn generated lending opportunities for bankers. This article examines the lending policies of a sample of UK banks with respect to the environment, focusing on issues of environmental risk management, market segmentation and the exploitation of marketing opportunities. The research found that while the banks are placing considerable emphasis on environmental risk management in their corporate lending operations, there is little evidence of them harnessing the opportunities presented by the “greening” of industry.

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