10 November 2025
Banks consider the climate performance of firms and buildings in their lending policies. The euro area bank lending survey shows that lower climate risks tend to improve credit conditions. Meanwhile, green investments increase loan demand from firms and households.
Reducing a firm’s carbon emissions or improving the energy efficiency of a building can help businesses and households to get a loan from the bank at more favourable conditions, the euro area bank lending survey (BLS) finds. According to the banks surveyed, the climate performance of businesses and buildings also affects loan demand from firms and households.[1] In this blog post, we summarise these trends and explore what is behind them.
Climate risk and bank lending to firms
How do climate risks affect the lending conditions banks offer to green firms, high-emitting firms and those in transition to green? Overall, our survey shows that banks’ credit standards (i.e. their internal guidelines and loan approval criteria), terms and conditions for loans are notably affected by the climate performance of their clients. Since we introduced this question to the bank lending survey in 2023, banks have reported an easing impact of climate risk and measures to cope with climate change on their credit standards, terms and conditions for green firms and those in transition.
To put these findings into perspective, we need to take a closer look at how the BLS works. Every quarter, we ask about 150 banks from all euro area countries if they have tightened or eased their credit standards, terms and conditions for loans to firms and households, or whether they have kept them broadly unchanged compared with the previous quarter. The survey also asks banks whether the demand they see for loans has increased, decreased, or remained broadly unchanged. Banks also report on the factors which have driven such developments, as well as on their expectations for the future. In addition, the BLS asks banks some topical questions, which include the climate change-related ones we are discussing in this post.[2]
Back to our findings: as mentioned above, we see that climate risk and measures to cope with climate change had an easing effect on euro area banks’ credit standards for loans to green firms and companies in transition. In fact, in the July 2025 BLS a net percentage of banks of 20% mentioned an easing impact on their credit standards for green firms, and 13% for firms in transition over the past 12 months (Chart 1, panel a).
By contrast, climate risk had a tightening impact for loans to high-emitting firms, which have not made much progress with the green transition or have not even started it yet (reported by a net percentage of banks of 35%).[3] This suggests that banks offer a “climate discount” in their risk assessment to green firms and those in transition. Also, they seem to charge a “climate risk premium” for high-emitting firms.[4] In other words, banks seem to grant loans at more favourable terms to environmentally friendly companies and those investing to become greener. That suggests that banks consider climate risks and measures to cope with climate change in their overall risk management.
We will now take a closer look at the different factors banks consider when giving out loans to firms. In their lending policies, banks assess firms’ transition risk, affecting the firm-specific situation and outlook, for instance regarding creditworthiness and the value of firms’ assets. They also take into account firms’ physical risk, which can affect the value of collateral and the company value more generally (Chart 1, panel b).[5] The former are risks that arise from moving towards a carbon-neutral economy, which can lead to financial losses linked to adjustment processes. The latter captures firms’ exposure to a changing climate, including more frequent or severe weather events, and dwindling ecosystems.
Based on the survey results from 2023-25, both transition risk and physical risk had a tightening impact on bank lending policies to firms.
This impact could deepen in the future. Banks expect physical risk to tighten their credit conditions for firms in net terms over the next 12 months: 18% of banks expect a tightening impact, while 8% expect an easing impact. Meanwhile, banks expect a broadly zero net impact of transition risk over the next 12 months, with an equal share of banks (16%) expecting a tightening and an easing impact of transition risk. This difference of opinion between banks may hint at uncertainty about the future impact of the green transition.
Still, we see a striking shift on transition risk, with banks expecting a broadly unchanged impact of transition risk on their lending conditions over the next 12 months. This is significantly lower than the reported realised impact in the previous two survey rounds (Chart 1, panel b). It may be related to firms’ progress on the green transition. Banks also reported a beneficial impact of climate-related fiscal support over the past 12 months, improving the chances of loan approval and mitigating the financing costs for firms managing the green transition. This easing impact is expected to increase over the next 12 months.
Chart 1
Impact of climate change on credit standards for loans to euro area firms, and driving factors
a) Impact on credit standards for loans to firms | b) Impact of climate-related factors on bank lending conditions for loans to firms |
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Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting a tightening of credit standards (blue line) or a tightening impact of climate change (dots) and the percentages of banks reporting an easing or easing impact. The solid line refers to actual values over the past three months, while the dashed part of the line refers to banks’ expectations over the next three months. The dots refer to actual values over the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to a net easing (negative values) or tightening (positive values) impact of climate change on bank lending conditions for firms. The climate-related question on firms was introduced in the July 2023 BLS and repeated annually.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for credit standards, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.
Next to the supply side, the BLS indicates that climate change also has an impact on demand for credit. According to the banks surveyed, climate change fuelled loan demand from green firms and firms in transition, especially for green investment purposes. Meanwhile, banks reported a dampening effect of climate change on loan demand from high-emitting firms (Chart 2, panel a). This could reflect the fact that these firms have not yet started the green transition or made little progress so far. In fact, banks reported that firms’ climate-related loan demand has been primarily driven by fixed investment like machinery, equipment and buildings. Banks also indicated corporate restructuring related to climate change in combination with preferential bank lending rates for green projects or technologies as drivers behind loan demand (Chart 2, panel b).[6] By contrast, high-emitting firms may have delayed green investment in part due to uncertainty about future climate-related regulation. This uncertainty was mentioned by a net 11% of banks as a factor dampening firms’ loan demand. Likewise, firm-specific financing conditions that are comparatively less favourable, and a possible lack of green management practices may have weighed on loan demand.[7] The BLS shows that banks expect these developments to persist over the next 12 months, as uncertainty about future climate regulation could continue to dampen firms’ demand for lending. Meanwhile, financing needs for fixed investment remain high and preferential bank lending rates and fiscal support for green investments could drive loan up demand.
Chart 2
Impact of climate change on demand for loans to euro area firms, and driving factors
a) Impact on loan demand to firms | b) Impact of climate-related factors on loan demand to firms |
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Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting an increase in loan demand (blue line) or a positive impact of climate change on loan demand (dots) and the percentages of banks reporting a decrease or negative impact. The solid line refers to actual values in the past three months, while the dashed part of the line refers to banks’ expectations for the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to the impact of climate change on bank loan demand. The climate-related question on firms was introduced in the July 2023 BLS and repeated annually. The factor “uncertainty about future climate regulation” was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for demand for loans, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.
Climate risk and bank lending to households for house purchase
Banks also take climate risk into account when lending to households for house purchase. While a high energy performance of buildings has had an easing impact on banks’ credit standards according to the survey results, the opposite has been the case for buildings with low energy performance. These are mainly old buildings which have not undergone any major energy modernisation (Chart 3, panel a).[8] So, for lending to households the same pattern holds true as for firm loans: households investing in houses with better climate performance tend to profit from better credit conditions.
As the BLS results indicate, physical risk of real estate had the largest net tightening impact on bank lending conditions of all the reported climate-related factors over the past 12 months (Chart 3, panel b). In net terms, the tightening impact of the energy performance of buildings (reflecting the transition risk of buildings) was small, as the tightening impact for some buildings was nearly compensated by an easing impact of energy performance for other, more environmentally friendly buildings.
Looking ahead, based on banks’ expectations, the easing impact of energy performance for buildings with high energy performance could outweigh the tightening impact for buildings with low energy performance over the next 12 months. By contrast, the net percentage of banks expecting a tightening impact from physical risk has increased. Overall, better energy performance of buildings could continue to improve lending conditions for housing loans, while physical risk seems to be a concern for a growing share of banks. Also, similarly to firm loans, climate-related fiscal support is expected to continue to have a beneficial impact on bank lending conditions for housing loans.
Chart 3
Impact of climate change on credit standards for housing loans in the euro area, and driving factors
a) Impact on credit standards for housing loans | b) Impact of climate-related factors on bank lending conditions for housing loans |
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Source: ECB (BLS).
Notes: In panel a), “EP” denotes “energy performance”. Net percentages are defined as the difference between the percentages of banks reporting a tightening of credit standards (blue line) or a tightening impact of climate change (dots) and the percentages of banks reporting an easing or easing impact. The solid line refers to actual values over the past three months, while the dashed part of the line refers to banks’ expectations over the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to an easing (negative values) or tightening (positive values) impact of climate change on bank lending conditions. The climate-related question on housing loans was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for credit standards, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.
Climate change also influences household demand for credit. According to the banks surveyed, the investment in the energy performance of buildings has been a key factor driving climate-related housing loan demand. BLS results show an increased loan demand over the past 12 months for buildings with high or medium energy performance, which are mostly new and relatively modern existing buildings (Chart 4, panel a). At the same time, while the European Commission finds that 75% of EU buildings have poor energy performance[9] and therefore require energy modernisation, banks reported that climate change actually weighed on loan demand in this segment. Looking ahead, banks expect a continued dampening impact of climate risks on household loan demand for buildings with low energy performance, suggesting some scepticism about the progress in energy modernisation of old buildings.
Meanwhile, investment in reducing the physical risk of real estate – e.g. making buildings resilient against storms or rising water levels – had only a small positive impact on housing loan demand over the past 12 months, although banks expect this impact to increase somewhat over the next 12 months (Chart 4, panel b). Similarly to business lending, banks consider uncertainty over future climate-related regulation to be a factor dampening housing loan demand. This may have contributed to postponing modernisation investment in existing buildings. Conversely, preferential bank lending rates aimed at enhancing the sustainability of real estate, along with climate-related fiscal support, had a positive impact on housing loan demand over the past 12 months and are expected by banks to continue to contribute positively in the next 12 months.
Chart 4
Impact of climate change on demand for housing loans in the euro area, and driving factors
a) Impact on housing loan demand | b) Impact of climate-related factors on housing loan demand |
|---|---|
 |  |
Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting an increase in loan demand (blue line) or a positive impact of climate change on loan demand (dots) and the percentages of banks reporting a decrease or negative impact. The solid line refers to actual values in the past three months, while the dashed part of the line refers to banks’ expectations for the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to the impact of climate change on bank loan demand. The climate-related question on housing loans was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for demand for loans, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.
Conclusion
The euro area bank lending survey indicates that the climate performance of firms and the energy performance of buildings matter for banks’ lending conditions. Banks have eased credit standards for firms and housing loans for buildings with a better climate performance and have made progress in managing climate-related risks.[10] Climate change also fuels loan demand by firms with better climate performance and those that are making substantial progress in the green transition, and by households for buildings with high and medium energy performance. Meanwhile, greater progress is needed for high-emitting firms and buildings with low energy performance, for which climate-related investment is currently delayed.
The views expressed in each blog entry are those of the authors and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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See the euro area BLS, especially the reports in July 2023, July 2024 and July 2025.
The ECB reports on these developments by aggregating banks’ replies in “net percentages”, which is the difference between the sum of the percentages of banks responding “tightened/decreased considerably” and “tightened/decreased somewhat” and the sum of the percentages of banks responding “eased/increased somewhat” and “eased/increased considerably”. All in all, the exercise gives valuable insights and provides up-to-date information into how banks currently assess their own lending policies and loan demand. The BLS also provides valuable information about expected developments of lending conditions, which is relevant for monetary policy decisions. For detailed account of the method, see User guide to the euro area bank lending survey .
“Green firms” are defined as firms that contribute little or nothing to climate change; “firms in transition” are firms that contribute to climate change but are making relevant progress in the transition; “high-emitting firms” are firms that contribute significantly to climate change and have not yet started the transition or made little progress.
See Nerlich, C. et al. (2025), “Investing in Europe’s green future – Green investment needs, outlook and obstacles for funding the gap”, Occasional Paper Series, No 367, ECB, January; ECB (2022), Good practices for climate related and environmental risk management: Observations from the 2022 thematic review, November; and Altavilla, C., Boucinha, M., Pagano, M. and Polo, A. (2023), “Climate Risk, Bank Lending and Monetary Policy”, Discussion Paper, DP18541, Centre for Economic Policy Research, October.
For the impact of climate risk on collateral value, see ECB (2025), “ECB to adapt collateral framework to address climate-related transition risks”, press release, 29 July.
See also European Investment Bank (2025), Investment Report 2024/2025, Chapter 3 on “Enablers and constraints for firms’ investment”. The report highlights that grants and bank loans with favourable conditions, and targeted policy support more generally, are effective in spurring climate action.
See also Costa, H. et al. (2024), “Making the grass greener: The role of firm’s financial and managerial capacity in paving the way for the green transition”, OECD Economics Department Working Papers, No 1791, OECD Publishing, Paris.
Buildings with “high energy performance” are defined as new buildings or equivalent to new in their energy performance (Energy Performance Certificate A-B). Buildings with “medium energy performance” are defined as buildings with reasonably good energy performance, i.e. modern buildings/existing buildings with major energetic modernisation other than equivalent to new (Energy Performance Certificate C-E). Buildings with “low energy performance” are defined as buildings with poor energy performance, i.e. old buildings without major energetic modernisation (Energy Performance Certificate F-G). If no Energy Performance Certificate (EPC) is available, the bank may use the age of the building and whether a major energetic modernisation has taken place or the actual energy consumption of the building (i.e. the amount of energy consumed, typically measured in kWh) as a proxy. See also the EU Energy Performance of Buildings Directive (EU/2024/1275).
See the European Commission’s website for more information on the Energy Performance of Buildings Directive.
See “Supervisory Priorities for 2025-2027”, ECB, December 2024. See also F. Elderson, “Banks have made good progress in managing climate and nature risks – and must continue”, The Supervision Blog, ECB, 11 July 2025.