Climate risk and bank lending to firms

: a literature review

Abstract

Climate change poses a challenge to the global economy, with the banking sector and corporate borrowers at the vanguard of managing related risks. Against this backdrop, this thesis investigates the state-of-the-art of the literature on the impact of climate risk on bank lending to corporations, focusing both on physical and transition risks. To do so, a systematic literature review is performed that covers papers published in top Finance journals (ABS 3 or above), between 2000 and 2024, available in the "Web of Science" database, and which meet certain climate-related keywords. By analysing in detail the 23 papers that resulted from the systematic review, we find a large number of results and potential gaps in the literature, including, for instance, that (i) there is some concentration of climate risk measures (physical risks: natural disasters, transition risk: carbon emissions), (ii) studies on climate physical risks are concentrated on the impact of climate risk on borrower creditworthiness, whereas papers on transition risks are almost exclusively focused on regulatory changes as the transmission channel, (iii) only a few studies have studied borrowing firm’s exposure to physical risks in Europe and the Emerging Markets; and (iv) physical risks generally exhibit a positive correlation with bank lending measures, while less consensus is found for transition risks. Overall, we view the results presented in this thesis as showcasing that the intersection between climate risks and bank intermediation is a vibrating field of study and we hope that researchers find this review interesting to guide future contributions for research.

Date of Award	23 Oct 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Bernardo de Vasconcelos e Sousa Paula Marques (Supervisor)