2026, Vol. 7, Issue 2, Part A

Purpose: This paper empirically investigates whether the introduction of sustainable finance regulations—specifically the EU Taxonomy Regulation and mandatory climate disclosure requirements—has reallocated bank lending capital away from carbon-intensive industries toward green sectors.

Design/methodology/approach: Using a difference-in-differences (DiD) framework, we analyze a panel of syndicated loans from 25 major European banks extended to 850 non-financial firms between 2017 and 2024. The sample is split into "Brown" (carbon-intensive) and "Green" (taxonomy-aligned) sectors, with the 2020 enactment of the EU Taxonomy serving as the exogenous policy shock.

Findings: The results indicate a statistically significant "regulatory reallocation effect." Post-regulation, lending volumes to carbon-intensive sectors decreased by approximately 14.2% relative to green sectors. Furthermore, the interest rate spread charged to brown borrowers increased by 18.5 basis points, suggesting that banks are pricing in transition risks more aggressively in response to regulatory pressure.

Originality/value: This study provides direct evidence of the "real effects" of sustainable finance regulation, demonstrating that disclosure mandates and taxonomy classifications are not merely compliance exercises but are actively reshaping capital allocation in the banking sector.