IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v150y2025ics0140988325006103.html

The extreme event of climate change: How digital transformation affects the performance of commercial banks?

Author

Listed:
  • Sun, Wujun
  • Zhai, Yujia
  • Li, Ruihai
  • Wang, Xuewu

Abstract

This paper investigates how digital transformation moderates the adverse impact of climate risks on commercial bank performance, using a panel dataset of 187 Chinese commercial banks from 2012 to 2021. The results reveal that heightened climate risks significantly reduce bank profitability and operational stability. However, digital transformation offsets these deleterious effects by lowering cost-to-income ratios and enhancing operational efficiency. A variety of robustness tests confirm the validity of the findings. Further heterogeneity analyses indicate that the mitigating role of digital transformation is more pronounced in developed regions and smaller banks. By explicitly linking climate risk and digital strategies, this study contributes to the growing literature on sustainable finance and risk management. The findings offer timely insights for policymakers and bank executives seeking to fortify financial institutions against climate disruptions, while highlighting the strategic value of digital investments for long-term resilience.

Suggested Citation

  • Sun, Wujun & Zhai, Yujia & Li, Ruihai & Wang, Xuewu, 2025. "The extreme event of climate change: How digital transformation affects the performance of commercial banks?," Energy Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:eneeco:v:150:y:2025:i:c:s0140988325006103
    DOI: 10.1016/j.eneco.2025.108783
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325006103
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108783?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Klomp, Jeroen, 2014. "Financial fragility and natural disasters: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 13(C), pages 180-192.
    2. Luo, Sumei & Yu, Shenghui & Zhou, Guangyou, 2021. "Does green credit improve the core competence of commercial banks? Based on quasi-natural experiments in China," Energy Economics, Elsevier, vol. 100(C).
    3. Han, Linna & Abedin, Mohammad Zoynul & Wang, Xianzi & Alharbi, Samar S. & Wang, Yong, 2024. "Will fighting climate change affect commercial banks? A carbon tax policy simulation," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    4. Xu, Chenxi & Yang, Lingyan, 2024. "The level of digitalization in Commercial banks and bank liquidity creation," Finance Research Letters, Elsevier, vol. 63(C).
    5. Gan, Kai & Li, Rongnan & Zhou, Qi, 2024. "Climate transition risk, environmental news coverage, and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    6. Kazeem Isah & Adedapo Odebode & Oluwafemi Ogunjemilua, 2023. "Does Climate Risk Amplify Oil Market Volatility?," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 4(2), pages 1-5.
    7. Fatima Chalabi-Jabado & Ydriss Ziane, 2024. "Climate risks, financial performance and lending growth: Evidence from the banking industry," Post-Print hal-04702207, HAL.
    8. Wang, Jun-Zhuo & Narayan, Paresh Kumar & Gunadi, Iman & Hermawan, Danny, 2025. "Climate change and financial risk: Is there a role for central banks?," Energy Economics, Elsevier, vol. 144(C).
    9. Chalabi-Jabado, Fatima & Ziane, Ydriss, 2024. "Climate risks, financial performance and lending growth: Evidence from the banking industry," Technological Forecasting and Social Change, Elsevier, vol. 209(C).
    10. Yang, Junqi & Geng, Jiang-Bo, 2025. "Dissecting the financial impact of climate risk," Energy Economics, Elsevier, vol. 143(C).
    11. Citterio, Alberto & King, Timothy & Locatelli, Rossella, 2024. "Is digital transformation profitable for banks? Evidence from Europe," Finance Research Letters, Elsevier, vol. 70(C).
    12. Kim, Incheol & Lee, Suin & Ryou, Jiwoo, 2024. "Does climate risk influence analyst forecast accuracy?," Journal of Financial Stability, Elsevier, vol. 75(C).
    13. Liu, Ziqiang & Feng, Qiushuo & Li, Hongyi, 2024. "Digital finance, bank competition shocks and operational efficiency of local commercial banks in Western China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    14. Lee, Chien-Chiang & Zhang, Xiaoli & Lee, Chi-Chuan, 2024. "Does climate change matter for bank profitability? Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    15. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abinzano, Isabel & Corredor, Pilar & Mansilla-Fernández, José Manuel, 2026. "Physical climate risk and banks’ credit risk: Worldwide evidence," The North American Journal of Economics and Finance, Elsevier, vol. 81(C).
    2. Wang, Chao & Hu, Mengyuan & Lu, Jiayi & Liu, Xiaoxing, 2025. "Carbon exposure of credit assets and banking systemic risk caused by climate transition," Research in International Business and Finance, Elsevier, vol. 77(PB).
    3. Chen, KanXiang & Teng, Fangfei & Razzaq, Asif & Li, Chengnan, 2025. "Climate conditions, credit risk cycles, and technological progress: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 210(C).
    4. Yahya, Farzan & Lee, Chien-Chiang & Chen, Pei-Fen, 2025. "Is central bank resilience vulnerable to climate risks? The role of exchange rate stability and green policies," Journal of Asian Economics, Elsevier, vol. 99(C).
    5. Helen Chiappini & Laura Nieri & Stefano Piser, 2025. "Climate risk and bank lending in South Africa," Working Papers 11086, South African Reserve Bank.
    6. Wang, Yong & Wang, Chao, 2025. "Climate risk and firms’ R&D investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 99(C).
    7. Qiu, Yixin & Chen, Jinyu & Ding, Qian, 2025. "Corporate climate risk exposure and stock liquidity: New evidence based on heterogeneous environmental regulation," Research in International Business and Finance, Elsevier, vol. 79(C).
    8. Zhou, Qi & Ni, Jiajun & Yang, Cunyi, 2025. "Climate transition risk and industry returns: The impact of green innovation and carbon market uncertainty," Technological Forecasting and Social Change, Elsevier, vol. 214(C).
    9. Lee, Chien-Chiang & Zhang, Xiaoli & Lee, Chi-Chuan, 2024. "Does climate change matter for bank profitability? Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    10. Wang, Jun-Zhuo & Narayan, Paresh Kumar & Gunadi, Iman & Hermawan, Danny, 2025. "Climate change and financial risk: Is there a role for central banks?," Energy Economics, Elsevier, vol. 144(C).
    11. Di Febo, Elisa & Angelini, Eliana & Le, Tu, 2026. "Climate-related risks and loan quality in Europe: Do institutional quality, environmental commitment, and bank size matter?," Research in International Business and Finance, Elsevier, vol. 81(C).
    12. Zhao, Xuejin & Yao, Xinbin & Huang, Jiayi, 2025. "Climate risks and financial stability: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    13. Wang, Chao & Jia, Chenfang & Liu, Xiaoxing, 2025. "Carbon-related credit concentration and banking systemic risk due to climate transition shocks," International Review of Financial Analysis, Elsevier, vol. 105(C).
    14. Wang, Fanyi & Ma, Wanying & Mirza, Nawazish & Altuntaş, Mehmet, 2023. "Green financing, financial uncertainty, geopolitical risk, and oil prices volatility," Resources Policy, Elsevier, vol. 83(C).
    15. Tan, Xiujie & Yan, Yaxue & Dong, Yuyang, 2022. "Peer effect in green credit induced green innovation: An empirical study from China's Green Credit Guidelines," Resources Policy, Elsevier, vol. 76(C).
    16. Lee, Chien-Chiang & Xiao, Qian & Zhang, Xiaoming, 2025. "Green credit and systemic risk: From the perspectives of policy and scale," The North American Journal of Economics and Finance, Elsevier, vol. 77(C).
    17. Zhao, Lili & Lin, Yutong & Liu, Zhenhao & Yang, Guozheng, 2026. "Examining climate risk attention in stock markets: insights from quantile-on-quantile regression," The North American Journal of Economics and Finance, Elsevier, vol. 81(C).
    18. Subhani Keerthiratne & Richard S. J. Tol, 2017. "Impact of Natural Disasters on Financial Development," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 33-54, June.
    19. Japan Huynh, 2025. "Digital Transformation and Bank Liquidity Creation: Evidence From a Bank-Based Market," SAGE Open, , vol. 15(4), pages 21582440251, October.
    20. Junhai Ma & Yuxin Liu & Liyan Geng, 2023. "Does green credit financing mode with cap‐and‐trade scheme really benefit all members?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(7), pages 4173-4192, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:150:y:2025:i:c:s0140988325006103. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.