Alfred de Jager
- 9 December 2025
- WORKING PAPER SERIES - No. 3164Details
- 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 Code
- G1 : Financial Economics→General Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, 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: Ecosystem Services, Biodiversity Conservation, Bioeconomics, Industrial Ecology