Working Paper Series no. 968. We exploit new data on NGO campaigns that target banks financing fossil fuels (``brown'' banks) to build a measure of French banks' environmental reputation, which we merge with granular data on bank deposits and loans of households in France over 2010-2020. We find that banks receive relatively fewer household deposits when they are perceived as browner. Depositors mostly react to their bank's brown reputation after the implementation of a new regulation that cuts down the transaction costs of changing banks. Last, using a large database of new mortgage loans, we show that browner banks also face a relatively lower demand for housing loans, implying lower mortgage loan rates offered to their customers.
Since the 2015 Paris Agreement and the associated calls for more responsible private finance, environmental NGOs have increasingly tracked and made public the trillions of funds funnelled annually by large banks worldwide into fossil fuels companies and projects directly contributing to the global climate warming. Many large banking groups have joined voluntary alliances for the climate in recent years. However, activist groups have consistently depicted these pro-climate commitments as not being binding enough and accused banks of largely greenwashing their activities. Meanwhile, environmental NGOs have multiplied calls in the public for boycotting the banks depicted as brown because of their continued support to the fossil energy industry
In this study, we leverage new data on NGO campaigns blaming French brown banks. We get extensive information on NGO campaigns from Sigwatch, a European consultancy that monitors the activities of some 11,000 NGOs worldwide and advises targeted companies on how to engage with activism. We focus on campaigns that target the main brands of the seven largest banking groups operating in France for reasons related to climate change, as well as, separately, for other types of ES concerns. We assume that repeated NGO actions progressively increase the awareness of the public and construct a time-varying index of bank brands’ brown reputation. We then take advantage of granular banking data from the Banque de France, which allows us to monitor households' deposits and loans for each individual bank affiliated to the targeted banking groups, in each of mainland France's 94 counties with monthly frequency. We match this information on individual banks' retail business with the brown reputation index of the bank’s brand, using both information on banks' affiliation and the specifics of banks' names to reflect depositors’ perception better.
Using this bank-county level data, we run panel regressions of bank deposits on banks' brown reputation indexes, controlling for local bank presence, as well as for local economic activity and unobserved bank and county characteristics. Causal identification relies on the reasonable assumption that NGO campaigns about banks' role in global climate warming is exogenous to French households' (local) saving and borrowing decisions. Our results show that banks with a reputation to be brown receive significantly less sight deposits from households.
Further, we exploit a well-publicized provision of the 2015 “Macron law” which, from February 2017 on, made it much easier and (transaction) cost-free for individuals to move their main checking account from a bank to another bank. This ``Bank Mobility Regulation'' supports our interpretation that NGO campaigns induce some depositors to exit brown banks. Indeed, we find that browner banks face a drop in sight deposits mostly after the implementation of the new regulation, when the costs of changing banks are minimal. While this holds on average, we also document some geographic heterogeneity. In counties with higher income, higher education, or more green voters, the impact of NGO campaigns on depositors' decision to change banks materializes also before the 2017 regulation, when transaction costs remain substantial.
Last, for a subsample of the same banks, we observe all individual housing loans granted to households by a representative sample of local bank branches throughout the country. We leverage this additional loan-level dataset to investigate whether NGO campaigns denouncing brown banks also have an impact on households' demand for housing loans. Controlling for loan, bank and municipality characteristics, we show that banks with a browner reputation charge lower rates than their green competitors. Since we also find that the volume of mortgage loans decreases with the brown reputation index of a bank, we conclude that browner banks face a lower demand for housing loans. Overall, these last results also point to a (limited) willingness of bank depositors to pay for their environmental values.
Keywords: Climate change, Households Finance, Brown banks, Green Preferences.
JEL classification: G21, G51, Q54.
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Updated on the 6th of December 2024