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Effects of Climate Change and Technological Capex on Credit Risk Cycles in the European Union

Author

Listed:
  • Nawazish Mirza

    (Excelia Group | La Rochelle Business School)

  • Muhammad Umar

    (ECJU - East China Jiaotong University)

  • Alexandra Horobet
  • Sabri Boubaker

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

Environmental degradation impacts businesses via both transitional and physical risks. Consequently, this can affect the repayment capacity and the default risk profile of the firms. Another factor that may impair the credit quality is the lack of technological adoption in the prevailing VUCA environment. Using a comprehensive sample of firms from the European Union, we assess the interplay of climate change, technology-related capex, and credit risk. Our findings reveal a positive relationship between emissions and the probability of default indicating a degrading impact of climate change. Similarly, we observe that firms with better environmental scores tend to have lower chances of default. Finally, we report a negative association between tech capex and default risk implying that firms that invest in technology have superior credit resilience. The results remain robust for multiple specifications of the default likelihood. We suggest that policymakers and businesses within the EU should strategically address the nexus of climate change and technology to endure more sustainable business models and financial stability within this dynamic region.

Suggested Citation

  • Nawazish Mirza & Muhammad Umar & Alexandra Horobet & Sabri Boubaker, 2024. "Effects of Climate Change and Technological Capex on Credit Risk Cycles in the European Union," Post-Print hal-04894964, HAL.
    • Handle: RePEc:hal:journl:hal-04894964
    DOI: 10.1016/j.techfore.2024.123448
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    Cited by:

    1. Liu, Ling & Shahrour, Mohamad H. & Wojewodzki, Michal & Rohani, Alireza, 2025. "Decoding energy market turbulence: A TVP-VAR connectedness analysis of climate policy uncertainty and geopolitical risk shocks," Technological Forecasting and Social Change, Elsevier, vol. 210(C).
    2. D’Orazio, Paola, 2025. "Climate risks and financial stability: Evidence on the effectiveness of climate-related financial policies," International Review of Financial Analysis, Elsevier, vol. 105(C).
    3. Dou, Jie & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "ESG uncertainties and valuation implications: Evidence from the EU banking sector," Research in International Business and Finance, Elsevier, vol. 76(C).
    4. Umar, Muhammad & Mirza, Nawazish & Achim, Monica Violeta & Ribeiro-Navarrete, Samuel, 2025. "The impact of climate change on credit portfolios and banking resilience: Preliminary evidence from a developing economy," International Review of Financial Analysis, Elsevier, vol. 102(C).
    5. 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).
    6. Sun, Tingting & Mirza, Nawazish & Umar, Muhammad & Ktaish, Farah, 2024. "When interest rates rise, ESG is still relevant – The case of banking firms," Finance Research Letters, Elsevier, vol. 69(PB).
    7. Zheng, Liya & Mirza, Nawazish & Umar, Muhammad & Su, Chi-Wei, 2025. "Sustainable lending to European SMEs: Implications for bank performance," International Review of Economics & Finance, Elsevier, vol. 102(C).
    8. Huang, Pai-Chin & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "Impact of environmental double materiality on firm valuation: Evidence from the EU," International Review of Economics & Finance, Elsevier, vol. 103(C).
    9. Ghallabi, Fahmi & Souissi, Bilel & Du, Anna Min & Ali, Shoaib, 2025. "ESG stock markets and clean energy prices prediction: Insights from advanced machine learning," International Review of Financial Analysis, Elsevier, vol. 97(C).

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