Category: Lending
The paper is among a growing body of research investigating the pricing of climate risks The paper is among a growing body of research investigating the pricing of climate risks The paper is among a growing body of research investigating the pricing of climate risks
US companies in locations that are more exposed to climate-related risks are being charged significantly higher interest rates on bank loans, a study from the University of Texas has found.
According to an analysis of loan pricing data, researchers concluded that companies in areas which are exposed to drought pay 1.6% higher interest for each standard deviation increase in a widely-used US national index, which measures drought in 48 states. The findings are supported by three additional measures of climate risks encompassing damages caused by rainfall, windstorms and flooding.
Researchers found that the impact of climate risks on the cost of borrowing was particularly acute among long-term loans, where a standard deviation increase in climate risk was associated with a 2.23% rise in the interest rates of long-term loans.
Additionally, the study concluded that as climate risks increased, lenders were more likely to reduce the size of loan…