Transparency and Real Effects of Banks’ Climate Stress Tests

The seminar, led by Gerrit von Zedlitz-Neukirch, will explore how climate stress tests impact banks’ disclosure and lending policies, especially under ESG pressure.

The recent series of bottom-up climate stress tests constituted a new intervention into banks’ internal production of climate risk information. We examine whether this intervention leads to changes in disclosures and lending. We find that stress-tested banks expand their climate risk disclosures around the climate stress tests especially if they had high ex-ante commitments to ESG disclosures and high climate risk exposures. This increased climate risk transparency is accompanied by notable changes in lending behavior. Specifically, high-risk borrowers of banks with a stronger change in commitment receive lower bank financing and adjust their operations. Overall, these findings suggest that climate stress tests can commit banks to integrating climate risks into their financial risk management while also influencing the real economy. However, these effects seem to be confined to banks under ESG market pressure, indicating that market discipline complements such soft forms of transparency interventions in driving climate risk integration.

Registration (for Online participation): Microsoft Virtual Events Powered by Teams

Event website: Transparency and Real Effects of Banks’ Climate Stress Tests / Free University of Bozen-Bolzano