Abstract
The carbon footprint of banks depends not only on their own operations but also, and more significantly, on their customers, who are or could become polluters in the future. This article examines the relationship between greenhouse gas emissions and market valuations for a sample of banks worldwide. We find that increasing scope 1, scope 2, and scope 3 emissions are negatively associated with the bank's price-to-book ratio. Moreover, we find that highly polluting banks have poor asset quality and low deposit shares. We believe that investors consider carbon footprints in equity valuation, recognizing that carbon exposure makes banks financially unstable. This finding is significant for bank managers and regulators, suggesting that initiatives to curb greenhouse gas emissions could enhance bank value and lead to better financial conditions.