IDEAS home Printed from https://ideas.repec.org/p/bdi/wpmisp/mip_077_26.html

Hydrogeological and credit risk: the italian firms' physical risk-adjusted probability of default

Author

Listed:
  • Manuel Cugliari

    (Bank of Italy)

  • Simone Narizzano

    (Bank of Italy)

  • Federica Vassalli

    (Bank of Italy)

Abstract

We assess the impact of climate-related physical risks on the one-year default probability (PD) of Italian non-financial firms, focusing on hydrogeological risks such as floods and landslides. We compile a dataset combining firms’ financial data with the geographic location of their operational units, matched to hazard levels. We develop a discrete risk indicator, and financial statements and PDs are adjusted to reflect climate-related physical risks. Our analysis shows that 38 per cent of firms are exposed to hydrogeological risks, with notable regional and sectoral differences. On average, exposure leads to a small increase in PD and limited economic impact, with negligible effects on collateral used in monetary policy operations. However, firms in high-risk areas suffer a significant drop in creditworthiness. Insurance coverage mitigates this effect, reducing the PD impact by half. These findings reflect current conditions. Without effective climate policies, the frequency and severity of extreme events are likely to increase in the future, thus amplifying the negative effects on firms’ credit profiles.

Suggested Citation

  • Manuel Cugliari & Simone Narizzano & Federica Vassalli, 2026. "Hydrogeological and credit risk: the italian firms' physical risk-adjusted probability of default," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 77, Bank of Italy, Directorate General for Markets and Payment System.
    • Handle: RePEc:bdi:wpmisp:mip_077_26
    as

    Download full text from publisher

    File URL: https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2026-077/N.77-MISP.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    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:bdi:wpmisp:mip_077_26. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdigvit.html .

    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.