Green Credit, Financing Constraints, And Corporate Green Transformation: A Financial Resource Allocation Perspective
Year: 2026
Type: article
Abstract: Green credit has become an important policy instrument for promoting sustainable development and integrating environmental considerations into financial resource allocation. As environmental concerns and climate-related risks increasingly influence economic activities, commercial banks are expected to play a greater role in supporting environmentally sustainable projects while maintaining financial stability. Where economic development and environmental sustainability are important policy priorities, green credit provides a potential mechanism for directing financial resources toward environmentally responsible industries. Drawing on financial intermediation theory and credit risk management perspectives, this study explores the channels through which green credit may influence commercial banks' credit risk. Green credit may reduce credit risk by encouraging banks to incorporate environmental factors into borrower assessments, strengthen lending standards, and identify potential risks associated with environmental regulations and unsustainable business practices. By directing financing toward environmentally responsible enterprises, banks may reduce their exposure to borrowers vulnerable to environmental and regulatory changes, thereby improving loan portfolio quality. These factors suggest that the relationship between green credit and credit risk may depend on banks' lending capabilities, borrower characteristics, and institutional conditions. The study is expected to contribute to the literature on sustainable finance by providing insights into the role of green credit in banking risk management within an emerging-market context. Its findings may also offer practical implications for commercial banks seeking to balance environmental responsibility with prudent lending decisions, as well as for policymakers developing green finance frameworks to support sustainable economic development and financial stability in Indonesia.
Authors: Dewi Purwati, Yeong Hong Yi
Language: English
Subfield: Finance
Domain: Social Sciences
SDG: Climate action
Open Access status: diamond
OpenAlex ID: W7225384215