Climate Transition Risks of Banks

Felix Martini, Zacharias Sautner, Sascha Steffen and Carola Theunisz
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Felix Martini: Frankfurt School of Finance & Management
Zacharias Sautner: University of Zurich; Swiss Finance Institute
Sascha Steffen: Frankfurt School of Finance & Management
Carola Theunisz: Frankfurt School of Finance & Management

No 23-66, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a bottom-up measure of U.S. banks' exposures to climate transition risks from the carbon footprint of their syndicated loan portfolios. The measure reveals significant variation in risk exposures across banks and over time. Bank exposures declined over time, especially since the Paris Agreement. This effect stems from a re-balancing of bank loan portfolios, with more lending to low-emission borrowers (not less lending to high-emission borrowers). Banks with higher risk exposures exhibit more climate-related disclosures in their earnings calls, but not in their Form 10-Ks. Risk exposures correlate with bank-level climate betas, which reflect the sensitivity of bank returns to the returns of a stranded asset index.

Keywords: Climate transition risks; banking sector; syndicated loans (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-ene and nep-env
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2366

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