Climate information disclosure quality and systemic risk in the U.S. banking industry

Zinan Hu and Sumuya Borjigin

Journal of Financial Stability, 2025, vol. 79, issue C

Abstract: Enhancing climate information disclosure quality in the banking sector improves transparency, reduces information asymmetry, and strengthens financial stability. We explore the effect of high-quality climate information disclosures, extracted from 271 U.S. banks’ annual reports from 2015 to 2024, on systemic risk. We use the deep learning model CLIMATEBERT to identify climate-related risk, neutral, and opportunity texts in U.S.-listed banks’ annual reports, focusing on their specificity. Based on these texts, and banks’ actual transition and physical risks, we construct a climate information disclosure quality index. This index includes non-symbolic and non-selective disclosures, measuring the transparency of banks’ climate disclosures. We find that improved climate disclosure quality reduces information asymmetry, mitigates market risk, and weakens systemic risk. Endogeneity tests and robustness checks support the findings. Increased investor attention amplifies the positive impact of climate disclosures. Finally, for financially unhealthy banks, the effect of enhanced disclosure quality is more significant.

Keywords: Climate information disclosure quality; Systemic risk; Banking industry; Information asymmetry; Chain mediation model (search for similar items in EconPapers)
JEL-codes: D12 G21 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:79:y:2025:i:c:s157230892500049x

DOI: 10.1016/j.jfs.2025.101420

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