Since 2020, the Single Supervisory Mechanism (SSM) has intensified climate supervisory initiatives for significant banks. By using a methodology for estimating firm-level emissions and granular loan data, the paper analyses the short-term effects of these initiatives on the credit supply of Italian banks, in terms of credit reallocation and funding conditions that differ among firms with different levels of generated emissions.
After the publication of the SSM supervisory expectations, significant institutions reallocated more of the credit that was previously granted to polluting firms than less significant ones did; this effect is entirely driven by banks that had already set emission reduction targets. Firms' transition plans do not seem to play a major role in the lending process at this stage, partly because of the limited availability and reliability of this type of information.
