Carbon footprint of bank loans

Bank loans impact the emission of greenhouse gases via their impact on economic activity. Loans can accelerate decarbonization by supporting low-carbon energy sources and clean, energy-efficient industry, manufacturing, and services.1 Examples include renewable energy, public transit, and energy efficient retrofits of buildings. Bank loans can have the opposite effect by supporting fossil fuel-intensive, high-polluting economic activity. Examples include oil and gas, mining, aviation, and shipping.

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The International Monetary Fund (IMF) developed a database to assess the “carbon footprint” of bank loans for selected countries.2  The data and discussion here is adapted directly from the IMF.

The carbon footprint indicator begins with the dollar value of domestic credit (loans) to the private sector by economic sector (steel, real estate services). Each economic sector has a specific carbon emissions intensity, measured in metric tons of CO2 per dollar of output (tonnes/$). The value of loans to a sector multiplied by that sector’s emissions intensity yields an estimate of the metric tons of CO2 emitted for a particular loan.

The IMF then calculates the “carbon footprint-adjusted loans to total loans,” a normalized indicator of the carbon intensity of bank loan portfolios. This indicator is the ratio of carbon footprint-adjusted loans ($) to total loans ($). A higher ratio means a greater share of lending goes to carbon-intensive sectors, while lower ratio means banks are more exposed to low-carbon sectors. This indicator helps regulators and stakeholders assess the climate-related financial risk in the banking system by linking loan allocations to emissions data.

 

 

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The IMF carbon footprint database is one of the first publicly available attempts to assess how exposed banks and their host countries are to the financial risks of climate change. It reflects the heightened interest of policymakers in understanding the potential impact climate transition risks may have on the financial system.3 Emblematic of this concern is the emergence of institutions such as the Partnership for Carbon Accounting Financials, a global industry-led initiative to measure and disclose the greenhouse gas emissions financed by loans and investments.4

1 Németh-Durkó, Emilia, “Impact of financial development on carbon emissions,” Economy and Finance, 7(4), December 2020, https://bankszovetseg.hu/Public/gep/2020/425-440%20Nemeth%20E%20Eng.pdf
2 International Monetary Fund, “Carbon Footprint of Bank Loans,” accessed July 7th, 2025, https://climatedata.imf.org/datasets/596f11fea29d429ba6c5507e3756a751_0/about
3 Hyeyoon Jung, João A. C. Santos, and Lee Seltzer, “U.S. Banks’ Exposures to Climate Transition Risks, Federal Reserve Bank of New York Staff Reports, no. 1058, January 2024, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1058.pdf
4 Partnership for Carbon Accounting Financials, https://carbonaccountingfinancials.com/en/

 

 

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