EU ESG Banking Rules Reduce Banks' Holdings in Battery Mineral Miners

The ECB working paper by Lena Schreiner and Andreas Beyer analyses how EU ESG banking regulations affect banks’ capital allocation to mining companies providing BEV battery raw materials (Lithium, Cobalt, Manganese, Nickel).

• Main finding / action: The paper documents a statistically significant dampening effect of the EU’s SFDR and the EU Taxonomy on EU‑headquartered banks’ public holdings of battery raw material mining companies. Key dates: SFDR adoption Q4/2019 (effective Q1/2021); Taxonomy adoption Q3/2020. The analysis uses merged datasets from S&P CapitalIQ, Refinitiv Eikon, Bloomberg and the ECB AnaCredit (baseline sample: 119,526 observations for overall battery materials) and applies a difference‑in‑differences design. The dampening effect is concentrated on companies with poor ESG ratings and shows lagged effects up to several quarters after the regulatory shocks.

• Background, controls and implementation details: The study tests whether reduced bank holdings led to higher share prices (cost of capital) or an ownership substitution effect. It finds share prices broadly unchanged (parallel trends tests), implying other investors replaced EU banks’ holdings and no immediate change in companies’ cost of capital or lending. Controls include GDP growth, inflation, bank total public holdings, company ESG ratings/disclosure, dividends, revenues, credit risk, raw material prices and fixed effects. Policy implication: the EU regulations change holder structure (reducing EU banks’ direct ownership and their engagement leverage) but do not, in the current international policy landscape, yet aggravate underinvestment in battery raw materials.