This paper investigates the impact of climate risk on banks' credit risk. Using a sample of 102 banks across 21 countries in the European Economic Area (EEA) from Q3 2019 to Q2 2023, we develop a novel approach to quantifying climate risk based on banks' loan exposures to industries and countries. Our findings indicate that climate transition risk (CTR), climate physical risk (CPR), and total climate risk (CR) significantly increase banks' credit risk. These results hold across alternative credit risk measures, offering valuable insights for financial institutions, policymakers and regulators.
Weathering the Storm: How Climate Risks Shape Bank Credit Risk in European Banks / Bellinvia, Adriano; Venturelli, Valeria; Brighi, Paola; Algeri, Carmelo. - In: FINANCE RESEARCH LETTERS. - ISSN 1544-6131. - 81:(2025), pp. 1-13. [10.1016/j.frl.2025.107511]
Weathering the Storm: How Climate Risks Shape Bank Credit Risk in European Banks
Bellinvia Adriano;Venturelli Valeria
;Brighi Paola;
2025
Abstract
This paper investigates the impact of climate risk on banks' credit risk. Using a sample of 102 banks across 21 countries in the European Economic Area (EEA) from Q3 2019 to Q2 2023, we develop a novel approach to quantifying climate risk based on banks' loan exposures to industries and countries. Our findings indicate that climate transition risk (CTR), climate physical risk (CPR), and total climate risk (CR) significantly increase banks' credit risk. These results hold across alternative credit risk measures, offering valuable insights for financial institutions, policymakers and regulators.
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