Pushing lenders to over-comply with environmental regulations: A developing country perspective

Authors

  • Parashar Kulkarni

    Corresponding author
    1. Centre for Development Finance, Institute for Financial Management and Research, Chennai, India
    • Centre for Development Finance, Institute for Financial Management and Research, 24 Kothari Road, Nungambakkam, Chennai 600 034, India.
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Abstract

In the past few years, the number of lenders adopting voluntary environmental codes, such as the Equator Principles, is increasing. The main reasons for this form of over-compliance include warm glow preferences of agents, credit risk and incentives arising from regulation. Empirical evidence suggests that lenders that over-comply are generally bigger than those that don't. In particular, they are likely to be MNCs. In addition, the behaviour of over-complying lenders differs from other lenders, for instance they are more likely to incorporate environmental risks in their lending practices. In the context of developing countries, incentives that promote over-compliance exist to much lesser degree. Analysing the regulatory environment in developing countries, we find no compelling reason for regulators to encourage voluntary initiatives such as the Equator Principles. Copyright © 2009 John Wiley & Sons, Ltd.

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