Indexing prudential requirements on the climate: what impacts can we expect?


Increasing the contribution of banks is the major issue that I4CE proposes to address in a study published in September 2021.

The objective is to overcome the classic opposition between the supporters of a Green Supporting Factor (for prudential relief due to the lower risk of green assets) and of a Penalizing Factor (to penalize activities that emit high CO2 levels because they are more exposed to transition risks).

By determining the impacts of these two approaches on project financing, on the internal profitability of banks, and on credit growth or contraction, I4CE demonstrates that prudential tools can be a response to a risk problem, but they cannot not sufficiently meet the challenges of the transition. Apart from the scheduled exit from fossil fuel activities for which a strong and localized penalizing factor may be conceivable, the other impacts on the transition of these devices are negligible or even counterproductive.