Climate Transition Risks of Banks

64 Pages Posted: 28 Aug 2023 Last revised: 31 May 2024

See all articles by Felix Martini

Felix Martini

Frankfurt School of Finance & Management

Zacharias Sautner

University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Sascha Steffen

Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)

Carola Theunisz

Frankfurt School of Finance and Management; KU Leuven

Date Written: May 31, 2024

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.

Keywords: Climate Transition Risks, Banks, Syndicated Loans, Disclosure, Lobbying

JEL Classification: G21; G28; Q54

Suggested Citation

Martini, Felix and Sautner, Zacharias and Steffen, Sascha and Theunisz, Carola, Climate Transition Risks of Banks (May 31, 2024). Swiss Finance Institute Research Paper No. 23-66, Available at SSRN: https://ssrn.com/abstract=4551735 or http://dx.doi.org/10.2139/ssrn.4551735

Felix Martini

Frankfurt School of Finance & Management ( email )

Zacharias Sautner (Contact Author)

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Swiss Finance Institute ( email )

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Sascha Steffen

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Carola Theunisz

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

KU Leuven ( email )

Naamsestraat 69
Leuven, Vlaams-Brabant 3000
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
889
Abstract Views
2,589
Rank
51,794
PlumX Metrics