Climate Change Risks and Financial Contracting

Marco Giometti, Finance, The Wharton School

Abstract: The goal of this project is to examine the relation between financial contracting and the risks stemming from climate change. What are the implications of climate change risks for borrower-lender interactions? Are financial agents responding to climate change risks, and if so, how? What are the incentives and motivations at play? Answering these questions is relevant for informing not only climate-related policies and regulations, but also for shedding light on risks and opportunities for businesses and investors. In particular, companies all over the world are subject to climate change risks, and consequently they will need to reorganize their business models, and make significant investments in adaptation strategies and in innovative technologies; this will require substantial financing. That is why understanding the relation between climate change and financial contracts is not only important from a finance perspective, but has ramifications for firm investment and corporate innovation as well. To this end, I intend to perform a quantitative analysis leveraging a novel dataset on corporate climate risk exposures merged with data on financial contract terms for a large, global sample of corporate loans.