Working paper 

Geopolitical Risk and Green Transition: Evidence from Green and Sustainability-linked Loans with Tobias Dieler, Giuseppe Pratobevera, Klaus Schaeck [SSRN]

Forthcoming Presentation: Sustainability and Green Finance Workshop* (Bocconi, May 2025 - poster session), 6th NSFE* (Naples, June 2025 - poster session), ESSEC-Luxembourg-CEPR Conference on Sustainable Financial Intermediation* (Reims, July 2025), ICBFS 2025 - Best paper award for PhD student (Piacenza, September 2025), 15th International Conference of the Financial Engineering and Banking Society (Florence, May 2026), FMA Europe (Braga, June 2026), EFMA (Kristiansand, June 2026).

Abstract: Using the 2022 Russia–Ukraine war as a quasi-natural experiment, we examine the relationship between geopolitical risk and the green transition in the green and sustainable loan (GSLL) market. Exploiting bilateral trade exposure as a proxy for geopolitical risk across 54 major economies, we find a significant post-war increase in both the number and volume of GSLL originations in highly exposed countries. This suggests that firms increase green and sustainable investments as a hedge against geopolitical risks. Our industry-level heterogeneity analysis further reveals that this increase is primarily driven by low-exposed industries within countries, while high-exposed industries show a negative but statistically insignificant response. We explore the underlying mechanisms from the perspective of borrowing firms. Our analysis shows that GSLL borrowers in low-exposed sectors experience a significant improvement in EBIT margins, while those in high-exposed sectors face a deterioration in operating cash flows following the geopolitical shock. Together, these findings highlight two distinct channels behind GSLL borrowing: low-exposed firms leverage green transition investments to pursue new business opportunities, while high-exposed firms prioritize financial survival by redirecting resources away from green transition to navigate geopolitical shocks.