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The climate-biodiversity-pollution nexus: the pricing of environmental credit risks for European

Author

Listed:
  • Hirschbühl, Dominik
  • Ceglar, Andrej
  • Emambakhsh, Tina
  • Pasqua, Carlo
  • Cojoianu, Theodor
  • Qi, Yifan
  • Rho, Caterina
  • Hu, Elsie
  • Petracco, Marco
  • Biganzoli, Fabrizio
  • de Jager, Alfred
  • Herrero, Laura Garcia
  • Mandrici, Andrea

Abstract

This study examines how euro area banks factor pollution-induced biodiversity risks into lending decisions, using data from 832 banks and 5,000 major polluters. Our results show that banks are increasingly pricing these risks by adjusting loan-to-value ratios and interest rates. Banks adjust lending conditions in line with EU pollution and biodiversity protection legislation, particularly for companies with large pollution footprints near biodiversity-protected areas or those contributing to Environmental Quality Standards failures of downstream surface waters. The former is driven primarily by banks’ adoption of biodiversity policies and public commitments to the Equator Principles, while the latter is a result of regulatory risks. Our findings inform financial supervisors on how banks manage risks associated with the EU’s zero pollution ambition, shed light on the interplay between biodiversity protection legislation and banks’ lending decisions, and offer actionable guidance on leveraging existing regulatory frameworks to address the climate-biodiversity-pollution nexus. JEL Classification: G1, G21, Q53, Q57

Suggested Citation

  • Hirschbühl, Dominik & Ceglar, Andrej & Emambakhsh, Tina & Pasqua, Carlo & Cojoianu, Theodor & Qi, Yifan & Rho, Caterina & Hu, Elsie & Petracco, Marco & Biganzoli, Fabrizio & de Jager, Alfred & Herrero, 2025. "The climate-biodiversity-pollution nexus: the pricing of environmental credit risks for European," Working Paper Series 3164, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253164
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    References listed on IDEAS

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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