The pricing of carbon risk in syndicated loans: Which risks are priced and why?

Abstract

bis working papers no 946 the pricing of carbon risk in syndicated loans: which risks are priced and why? by torsten ehlers, frank packer and kathrin de greiff monetary and economic department june 2021 jel classification: g2, q01, q5. keywords: environmental policy, climate policy risk, transition risk, loan pricing. bis working papers are written by members of the monetary and economic department of the bank for international settlements, and from time to time by other economists, and are published by the bank. the papers are on subjects of topical interest and are technical in character. the views expressed in them are those of their authors and not necessarily the views of the bis. this publication is available on the bis website (www.bis.org). © bank for international settlements 2021. all rights reserved. brief excerpts may be reproduced or translated provided the source is stated. issn 1020-0959 (print) issn 1682-7678 (online) the pricing of carbon risk in syndicated loans: which risks are priced and why?1 torsten ehlers, frank packer and kathrin de greiff 2 abstract do banks price the risks of climate policy change? combining syndicated loan data with carbon intensity data (co2 emissions relative to revenue) of borrowers across a wide range of industries, we find a significant “carbon premium” since the paris agreement. the loan risk premium related to co2 emission intensity is apparent across industries and broader than that due simply to “stranded assets” in fossil …

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