3. Determinants of Environmental Credit Risk Management: Empirical Evidence from European Banks

This chapter explores determinants of banks’ environmental credit risk management (ECRM) level. Content analysis is used to quantify the ECRM level of 50 banks in Europe between 2016 and 2018. The impact of stakeholder power and banks’ characteristics on ECRM is investigated through a regression model. This chapter finds that banks in Europe that adopt higher levels of ECRM are Equator Principles signatories, are larger and have more financial strength, while the legal environments of their domiciliation countries and cooperative bank business models are not significant. The proposed ECRM framework synthesizes previous ECRM measurements. It can be used as a new rating system to compare banks’ ECRM levels. It is argued that banks can serve as powerful change agents in reducing the impact of corporations on the environment by influencing the behaviors of borrowing firms through ECRM.