Summary
Using a novel dataset that combines syndicated loans originated in the Asia Pacific markets
with greenhouse gas emission intensity data of borrowers, this study examines whether and to
what extent banks in the region have considered climate-related risk in their loan pricing
decisions. Our results suggest that the banks in the region have started to price-in climate-
related risk for loans to emissions-intensive sector since the Paris Agreement. This probably
reflects their increased awareness of a climate-transition risk that such firms face. In addition,
banks’ environmental attitude is found to be one key factor in determining the extent of
transition risk premium in loan pricing. In particular, more environmentally concerned banks
(green banks) tend to charge a higher loan rate than their non-green counterparts when
lending to the same “brown” firm in the post-Paris Agreement period. Overall, these findings
provide evidence that banks in the region have started to incorporate climate risk
considerations into their existing risk management framework. Nevertheless, managing
climate risks will remain a key challenge for banks due to the different nature from the
traditional risk types and data gaps. Banks should therefore keep abreast of the latest
developments in climate risk management practices to adjust their own risk management
approach.
