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Climate Transition Risks of Banks

Author

Listed:
  • Felix Martini

    (Frankfurt School of Finance & Management)

  • Zacharias Sautner

    (University of Zurich; Swiss Finance Institute)

  • Sascha Steffen

    (Frankfurt School of Finance & Management)

  • Carola Theunisz

    (Frankfurt School of Finance & Management)

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. The measure reveals significant variation in risk exposures across banks and over time. Bank exposures declined over time, especially since the Paris Agreement. This effect stems from a re-balancing of bank loan portfolios, with more lending to low-emission borrowers (not less lending to high-emission borrowers). Banks with higher risk exposures exhibit more climate-related disclosures in their earnings calls, but not in their Form 10-Ks. Risk exposures correlate with bank-level climate betas, which reflect the sensitivity of bank returns to the returns of a stranded asset index.

Suggested Citation

  • Felix Martini & Zacharias Sautner & Sascha Steffen & Carola Theunisz, 2023. "Climate Transition Risks of Banks," Swiss Finance Institute Research Paper Series 23-66, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2366
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4551735
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    Cited by:

    1. Bartsch, Florian & Busies, Iulia & Emambakhsh, Tina & Grill, Michael & Simoens, Mathieu & Spaggiari, Martina & Tamburrini, Fabio, 2024. "Designing a macroprudential capital buffer for climate-related risks," Working Paper Series 2943, European Central Bank.
    2. Tommaso Oliviero & Sandro Rondinella & Alberto Zazzaro, 2024. "Are green firms more financially constrained? The sensitivity of investment to cash flow," CSEF Working Papers 700, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    Keywords

    Climate transition risks; banking sector; syndicated loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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