Physical climate risk and the pricing of bank loans

EEM HUB NL shares this open-access academic paper on physical climate risk and bank loan pricing. Using a global dataset of ~86,000 syndicated loans (1996–2022), the study finds that firms located in more climate-vulnerable countries face higher borrowing costs—with the effect strongest for longer-maturity loans and financially distressed firms. Banks also tighten other terms (e.g., collateral requirements, covenants, fees) as physical risk increases, and the paper shows the mechanism largely runs via higher long-term default risk (credit ratings), rather than short-term risk. For EEM HUB NL members, this is a useful evidence base for linking physical climate risk to credit risk management, portfolio steering, and prudential discussions. 

Physical climate risk and the pricing of bank loans.pdf

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