When the storm hits: how does energy uncertainty influence green credit in Chinese banks?

Abstract

General economic policy uncertainty is known to suppress credit, yet the specific impact of energy-related uncertainty on sustainable finance remains underexplored. This study investigates the influence of the Energy Uncertainty Index (EUI) on Green Credit (GC) allocation within the Chinese banking sector. Using an unbalanced panel of 42 A-share-listed commercial banks from 2011 to 2023, we employ an import-share-weighted Geopolitical Risk (GPR) index as an instrumental variable and System GMM estimation to address endogeneity. Our results demonstrate that (i) heightened EUI prompts banks to structurally shift credit from carbon-intensive to green industries; (ii) panel quantile regression reveals that institutions with a stronger initial green credit base respond more vigorously to energy shocks; and (iii)the mechanism is robustly driven by a supply-side transmission channel—Peer Green Credit Pressure (PGCP)—while also providing empirical evidence consistent with a demand-side pull from corporate Green Investment Intensity (GI). Heterogeneity tests indicate this reallocation is most pronounced among state-owned banks, large-scale institutions, and banks in green finance pilot zones. These findings challenge the conventional view that uncertainty uniformly inhibits lending, illustrating instead that targeted energy uncertainty acts as a catalyst for green credit restructuring and enhances energy transition resilience.