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The Market Reaction to Climate Risk: Evidence from the European Banking Industry

In: Creating Value and Improving Financial Performance

Author

Listed:
  • Francesca Battaglia

    (University of Naples Parthenope)

  • Francesco Busato

    (University of Naples Parthenope)

  • Simone Taddeo

    (University of Naples Parthenope)

Abstract

The transition to low-fossil-fuel-economy shifts away those companies that are exposed to climate risks. By applying a panel data analysis over a sample of 45 listed European banks, spanning from the period that goes from 2014 to 2020, our findings show that investors, before the introduction of the EU Sustainable Finance Action Plan in 2018, demand higher compensation for banks that include high-carbon-intensive activities, as a hedge of climate change risks. However, when the EU sustainable regulation has been put in place, the correlation between banks’ carbon emissions and returns drops, providing a positive impulse for promoting sustainable investments, prompting the so-called portfolio decarbonisation process.

Suggested Citation

  • Francesca Battaglia & Francesco Busato & Simone Taddeo, 2023. "The Market Reaction to Climate Risk: Evidence from the European Banking Industry," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Paul Wachtel & Giovanni Ferri & Ewa Miklaszewska (ed.), Creating Value and Improving Financial Performance, chapter 0, pages 1-26, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-24876-4_1
    DOI: 10.1007/978-3-031-24876-4_1
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