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Opinion
Elisa Martinuzzi

Climate-Friendly Banking Might Be a Risky Thing

The European Union’s attempt to encourage green loans to business is noble, but there’s a danger of stoking the return of excessive leverage. 

How green is your loan.

How green is your loan.

Photographer: GABRIEL BOUYS/AFP

As part of Europe’s promise to become the first “climate-neutral” continent by 2050, the region is emerging as a leader in creating standards for green investments. But the push to get its banks to back sustainable assets needs careful scrutiny.

At the core of the European Union’s project is the creation of a single set of definitions to determine what economic activities are sustainable and should count as green. To take just one example, for a transport project to be labeled green the passenger trains would have to have no direct emissions or they must be below a certain threshold. The initial aim is for these classifications to form the basis for framing green bond issues, but they will go beyond that: They might well shape government spending and central bank stimulus programs.