The Climate-Biodiversity-Pollution Nexus: The pricing of environmental credit risks for European industrial polluters

Dominik Hirschbuehl (), Andrej Ceglar, Theodor Cojoianu, Tina Emambakhsh, Yifan Qi, Caterina Rho (), Elsie Hu, Marco Petracco (), Fabrizio Biganzoli, Alfred De Jager (), Laura Garcia Herrero (), Andrea Mandrici and Carlo Pasqua
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Dominik Hirschbuehl: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Caterina Rho: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Marco Petracco: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Alfred De Jager: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Laura Garcia Herrero: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No 2025-10, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

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.

Date: 2025-12
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