We study how banks’ climate sentiments affect their lending decisions and economic decarbonization.Banks can form expectations about firms’ performance in the low-carbon transition either in a backwardlooking(firms’ GHG emissions) or forward-looking way (firms’ technology alignment). We...

We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use granular fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in...