We study whether environmental engagement of banks mitigates the effects of natural disasters and climate-change related events on financial stability. Employing an extensive global dataset with quarterly data (2003–2019; 5,317 observations), our analysis reveals that environmental innovation financing, product responsibility, and resource reduction policies are able to curtail the repercussions on stability of economic costs due to environmental events. We also find that the lending function of banks is a relevant mediating channel for this relationship. Since borrowers’ vulnerability to climate issues may be reflected in non-performing loans, banks’ environmental engagement provides protection against future related credit losses. Moreover, by capitalizing on global disasters as quasi-natural experiments, we provide empirical evidence confirming that a stronger environmental engagement of banks enhances their post-event financial resilience. Taken together, our results convey several key implications: i) bank executives can improve financial stability by embracing environmental policies, ii) stronger regulatory actions towards environmental sensitivity in the banking sector is supported, and iii) environmentally engaged banking systems can mitigate the economic costs associated with climate change and environmental disasters.

Banks’ environmental policies and banks’ financial stability

Dreassi, Alberto;
2024-01-01

Abstract

We study whether environmental engagement of banks mitigates the effects of natural disasters and climate-change related events on financial stability. Employing an extensive global dataset with quarterly data (2003–2019; 5,317 observations), our analysis reveals that environmental innovation financing, product responsibility, and resource reduction policies are able to curtail the repercussions on stability of economic costs due to environmental events. We also find that the lending function of banks is a relevant mediating channel for this relationship. Since borrowers’ vulnerability to climate issues may be reflected in non-performing loans, banks’ environmental engagement provides protection against future related credit losses. Moreover, by capitalizing on global disasters as quasi-natural experiments, we provide empirical evidence confirming that a stronger environmental engagement of banks enhances their post-event financial resilience. Taken together, our results convey several key implications: i) bank executives can improve financial stability by embracing environmental policies, ii) stronger regulatory actions towards environmental sensitivity in the banking sector is supported, and iii) environmentally engaged banking systems can mitigate the economic costs associated with climate change and environmental disasters.
File in questo prodotto:
File Dimensione Formato  
1-s2.0-S1042443123001956-main.pdf

Accesso chiuso

Descrizione: articolo
Tipologia: Documento in Versione Editoriale
Licenza: Copyright Editore
Dimensione 915.69 kB
Formato Adobe PDF
915.69 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
1-s2.0-S1042443123001956-main-Post_print.pdf

embargo fino al 02/01/2026

Tipologia: Bozza finale post-referaggio (post-print)
Licenza: Creative commons
Dimensione 1.36 MB
Formato Adobe PDF
1.36 MB Adobe PDF   Visualizza/Apri   Richiedi una copia
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11368/3067258
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 4
  • ???jsp.display-item.citation.isi??? 4
social impact