The impact of climate change awareness on banks´ risk exposure: evidence from euro-area and north American banks

Abstract

Climate change brings risks and opportunities for banks’ business. I empirically analyze U.S. and Euro-area banks to investigate how awareness of these risks and opportunities impacts banks’ risk exposure. For U.S. banks, I find a statistically insignificant effect of awareness on banks’ risk-weighted assets. On the other hand, I find a significant convex relationship for Euro area banks: overall, awareness reduces the risk taken. However, beyond a certain awareness level, banks shift their portfolios to riskier assets. Possible explanations are lower credit losses and easier access to capital. These results are relevant for banks’ risk management and regulatory policies.