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Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector

Author

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  • Becker, Annette
  • Di Girolamo, Francesca Erica
  • Rho, Caterina

Abstract

Biodiversity loss can have direct economic impacts, as it limits the availability of natural resources and increases costs across various industries. Biodiversity and nature-related risks can jeopardize creditworthiness of borrowers, and raises concerns for lenders, potentially leading to stricter lending conditions. This paper analyzes how these risks spread from the real economy to the syndicated loan market in the European Union and United Kingdom. We construct a country-level indicator of biodiversity exposure for EU lenders. Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the exposure level of borrowers and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower. These findings suggest that creditors are increasingly incorporating nature-related information into their financing decisions, allowing them to diversify and pool risks.

Suggested Citation

  • Becker, Annette & Di Girolamo, Francesca Erica & Rho, Caterina, 2025. "Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector," Research in International Business and Finance, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:riibaf:v:75:y:2025:i:c:s0275531924005178
    DOI: 10.1016/j.ribaf.2024.102724
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    More about this item

    Keywords

    Nature-related financial risk; Natural capital; Biodiversity; Ecosystem services; Double materiality; Financial sector; Banks; Debt financing; Syndicated loans; Loan pricing; Premium; International spillovers; Risk transmission; Borrower diversification; EU;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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