Natural Catastrophes and Bank Lending: The Case of Flood Risk in Italy

Faiella, Ivan; Natoli, Filippo

doi:10.2139/ssrn.3429210

Cited by 27 publications

(25 citation statements)

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“…In this paper, we addressed the important and pressing issue of climate change in the financial sector. In recent times, banks are increasingly suffering the consequences of this new phenomenon and experiencing high credit risks (Faiella & Natoli, 2018). Specifically, our analysis focused on the implications a bank's commitment to climate issues has on credit risk based on the assumption that the banks that are more attentive to environmental issues tend to better assess the creditworthiness of their borrowers and to select eco‐friendly and less risky clients (Gangi et al, 2019).…”

Section: Conclusion Implications and Limitationsmentioning

confidence: 99%

Climate change commitment, credit risk and the country's environmental performance: Empirical evidence from a sample of international banks

et al. 2022

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This paper analyses whether banks with a greater commitment to climate change issues, proxied by the climate change score from the Carbon Disclosure Project (CDP), experience an impact on their credit risk and whether this relationship is moderated by the environmental performance of the country where the bank is located. For these purposes, a panel data analysis is carried out on a large sample of international listed banks over the period 2011–2019. Our findings suggest that the commitment to climate issues lowers the risk level of bank loans when banks have a medium‐high level of attention to these issues. The country location of the bank does play a key role: In countries with better environmental performance, credit risk reduction takes place at lower levels of climate change commitment. This study provides important implications for the actions that bank managers, regulators and practitioners can enact.

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Section: Conclusion Implications and Limitationsmentioning

confidence: 99%

Climate change commitment, credit risk and the country's environmental performance: Empirical evidence from a sample of international banks

et al. 2022

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“…In the main climatological scenarios, Italy is significantly exposed to climate and environmental risks and, in particular, to hydrogeological risk. It is the country in Europe most exposed to damage from river flooding (Faiella & Natoli, 2018). The high level of risk makes environmental protection increasingly important in Italy.…”

Section: Introductionmentioning

confidence: 99%

Environmental attitude in the board. Who are the “green directors”? Evidences from Italy

et al. 2021

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Board members' attitudes towards environmental protection are an important antecedent of how companies define and implement sustainability initiatives, but little is known about directors' attitudes and the factors associated with these. Using survey data on Italian board members, the research sought to explore the relationships between these individual's personal attributes, especially those related to their roles on boards, and their attitudes towards environmental protection. The findings suggest that female directors, directors with financial background, and independent directors are positively related to attitudes towards environmental protection. In the financial sector, younger board members and risk committee members show stronger environmental attitudes. The results could be of interest to policymakers because the board member attributes identified may require a stronger regulatory focus in order to achieve public policy's environmental protection objectives and to governance bodies in terms of defining board committees' composition and selecting “green directors” oriented towards environmental issues.

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“…The first involves physical risks, such as floods, landslides, hurricanes and wildfires, which can destroy relevant fixed assets, thus imposing losses on firms that impair their ability to operate and to repay their debt (NGFS, 2019). Faiella and Natoli (2019), for instance, indicate that over the last years, Italian banks have reduced their credit supply to firms in risky areas. The second channel involves transition risk, which refers to the additional costs or devaluation of assets due to changes in the regulation made with the purpose of reducing GHG emissions and adjusting to a low‐carbon economy (Batten, 2018).…”

Section: Introductionmentioning

confidence: 99%

Carbon emissions and the cost of debt in the eurozone: The role of public policies, climate‐related disclosure and corporate governance

2020

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Over time, investors have become increasingly aware of the risks associated with a transition to a low-carbon economy. This study investigates the association between carbon emissions and the cost of debt financing for a sample of firms from the eurozone in the period 2010-2018. The results provide evidence that the risk premium required by lenders increases with carbon emissions. However, although the most polluting sectors were already charged before the Paris Agreement, and not further penalised in the subsequent period, our results indicate that the less polluting sectors started being charged a higher spread for their emissions only in the period after the Agreement. The Paris Agreement appears to be a turning point around which lenders have become aware of the strong commitment taken by policymakers in fighting climate change. Our findings also suggest that increased levels of disclosure on climate-related issues can mitigate corporate carbon risk. On the other hand, the results are not compelling when we consider the effect of control mechanisms, such as external verification for emissions, board oversight of carbon risk and the presence of emission reduction targets, on the cost of debt. Taken as a whole, the results demonstrate the effectiveness of public policies in driving lenders' allocation decisions as well as the role of climate-related disclosure in mitigating the corporate cost of capital. As such, our findings have important implications for both policymaking in environmental regulation and managerial strategies.

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Natural Catastrophes and Bank Lending: The Case of Flood Risk in Italy

Cited by 27 publications

References 0 publications

Climate change commitment, credit risk and the country's environmental performance: Empirical evidence from a sample of international banks

Climate change commitment, credit risk and the country's environmental performance: Empirical evidence from a sample of international banks

Environmental attitude in the board. Who are the “green directors”? Evidences from Italy

Carbon emissions and the cost of debt in the eurozone: The role of public policies, climate‐related disclosure and corporate governance

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