Climate Risk, ESG Performance, and ESG Sentiment for U.S. Commercial Banks
52 Pages Posted: 4 Dec 2022 Last revised: 3 Dec 2023
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Climate Risk, ESG Performance, and ESG Sentiment for U.S. Commercial Banks
Climate Risk, ESG Performance, and ESG Sentiment for U.S. Commercial Banks
Date Written: November 12, 2022
Abstract
We measure the exposure to and materiality of physical climate risk for U.S. commercial banks through branch-level information. Our location-specific climate risk measure is positively associated with the environmental, social, and governance (ESG) performance of banks and negatively associated with their stakeholders' sentiment on ESG issues. Further, banks that experience climate risk shocks, as proxied by NOAA billion-dollar disasters, increase their ESG performance and accordingly receive positive ESG sentiment compared to matched banks. While negative sentiment due to climate risk exposure is associated with worse financial performance, a stronger ESG engagement mitigates this adverse effect.
Keywords: Commercial banks; Climate risk; ESG performance; ESG sentiment
JEL Classification: G11, G12, G14, G21
Suggested Citation: Suggested Citation