Biodiversity Risk and Small Business Lending

Duc Duy Nguyen, Steven Ongena, Shusen Qi, Vathunyoo Sila and Yibing Wang
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Duc Duy Nguyen: Durham University
Steven Ongena: University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)
Shusen Qi: Xiamen University
Vathunyoo Sila: University of Edinburgh - Business School
Yibing Wang: King's College London

No 25-54, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using loan-level data from the U.S. Small Business Administration's 7(a) program, we examine whether lenders incorporate biodiversity risk into credit decisions. We focus on biodiversity dependency risk (the extent to which firms rely on ecosystem services) and biodiversity impact risk (the extent to which firms negatively affect biodiversity). Dependency risk is consistently associated with higher interest rates, more frequent securitization, and lower credit availability. In contrast, impact risk influences loan pricing only in recent years, following global initiatives such as the Paris Agreement and the Kunming-Montreal Framework. The effect of impact risk is stronger in politically progressive states and areas with greater regulatory exposure. Our findings suggest that dependency risk represents credit risk for lenders, whereas impact risk is associated with growing reputational and litigation risk linked to lending to firms with negative biodiversity impact.

Keywords: Biodiversity Risk; Bank Lending; Small Businesses; Kunming Declaration (search for similar items in EconPapers)
Pages: 50 pages
Date: 2025-06
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2554

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