The climate-biodiversity-pollution nexus: the pricing of environmental credit risks for European

Dominik Hirschbühl, Andrej Ceglar, Tina Emambakhsh, Carlo Pasqua, Theodor Cojoianu, Yifan Qi, Caterina Rho, Elsie Hu, Marco Petracco, Fabrizio Biganzoli, Alfred de Jager, Laura Garcia Herrero and Andrea Mandrici

No 3164, Working Paper Series from European Central Bank

Abstract: This study examines how euro area banks factor pollution-induced biodiversity risks into lending decisions, using data from 832 banks and 5,000 major polluters. Our results show that banks are increasingly pricing these risks by adjusting loan-to-value ratios and interest rates. Banks adjust lending conditions in line with EU pollution and biodiversity protection legislation, particularly for companies with large pollution footprints near biodiversity-protected areas or those contributing to Environmental Quality Standards failures of downstream surface waters. The former is driven primarily by banks’ adoption of biodiversity policies and public commitments to the Equator Principles, while the latter is a result of regulatory risks. Our findings inform financial supervisors on how banks manage risks associated with the EU’s zero pollution ambition, shed light on the interplay between biodiversity protection legislation and banks’ lending decisions, and offer actionable guidance on leveraging existing regulatory frameworks to address the climate-biodiversity-pollution nexus. JEL Classification: G1, G21, Q53, Q57

Keywords: biodiversity loss; chemical pollution; EU Biodiversity Strategy; loan pricing; Natura 2000 (search for similar items in EconPapers)
Date: 2025-12
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