Climate Transition Risks of Banks

Felix Martini, Zacharias Sautner, Sascha Steffen and Carola Theunisz

No 19152, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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. Transition risk exposures have declined over time, especially since the Paris Agreement. This effect results from a re-balancing of bank loan portfolios, with more lending to low-emission borrowers rather than a reduction in lending to high-emission borrowers. Banks with higher transition risk provide more climate-related disclosures in their earnings calls only when probed by analysts, but not voluntarily in their Form 10-Ks. Banks engage in more anti-climate lobbying after their risk exposures increased. Our measure of transition risk correlates with bank-level climate betas, which reflect the sensitivity of bank returns to the returns of a stranded asset index.

JEL-codes: G21 G28 Q54 (search for similar items in EconPapers)
Date: 2024-06
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