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Climate Transition Risks of Banks

Author

Listed:
  • Martini, Felix
  • Sautner, Zacharias
  • Steffen, Sascha
  • Theunisz, Carola

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.

Suggested Citation

  • Martini, Felix & Sautner, Zacharias & Steffen, Sascha & Theunisz, Carola, 2024. "Climate Transition Risks of Banks," CEPR Discussion Papers 19152, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19152
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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