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).

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.