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Firms’ climate risks and bank lending: Evidence from the COVID-19 crisis

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  • Shikimi, Masayo

Abstract

Climate risks influence banks' lending behavior during the COVID-19 pandemic. Our study uses Japanese data to show that banks reduced lending to high CO2 intensity firms at the start of the crisis and the following year. However, banks that previously invested heavily in these firms increased their lending, especially to firms with significant declines in sales. Our results also reveal that banks' lending to high CO2 intensity firms varies according to their capital buffers. These findings hold even when considering zombie lending and bank relationships, indicating that banks took climate risks into account when reallocating funds during a liquidity shock.

Suggested Citation

  • Shikimi, Masayo, 2025. "Firms’ climate risks and bank lending: Evidence from the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016350
    DOI: 10.1016/j.frl.2024.106606
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    References listed on IDEAS

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    1. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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