Bank Responses to Physical and Transition Risks in Lending: A Diagnostic Framework From a Systematic Literature Review
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In: Business Strategy and the Environment, 2025.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Bank Responses to Physical and Transition Risks in Lending
T2 - A Diagnostic Framework From a Systematic Literature Review
AU - Brüggemann, Tabea
AU - Lueg, Rainer
N1 - Publisher Copyright: © 2025 The Author(s). Business Strategy and the Environment published by ERP Environment and John Wiley & Sons Ltd.
PY - 2025
Y1 - 2025
N2 - Banks face mounting pressure to integrate climate risks into lending, yet responses remain incoherent. This systematic literature review of 9034 studies synthesizes 68 peer-reviewed articles and develops a behavioral typology of five bank responses: recovery, containment, repricing, reallocation, and relational transformation. Responses vary by risk type, visibility, and salience. Acute, unexpected physical risks (nine studies) trigger recovery lending, while expected (five) or chronic risks (12) lead to containment or repricing. Transition risks (42) are more consistently priced when indicators are quantifiable and policy-aligned; softer ESG signals elicit conditional responses. Asymmetries arise: recovery and containment occur only for physical risks, while strategic reallocation remains rare. Carbon-intensive firms are penalized, while green firms benefit only when performance is credible and verifiable. We propose a diagnostic framework to evaluate climate risk management in lending, providing a novel tool to assess climate risk integration in bank lending and inform regulatory design and sustainability-oriented strategy.
AB - Banks face mounting pressure to integrate climate risks into lending, yet responses remain incoherent. This systematic literature review of 9034 studies synthesizes 68 peer-reviewed articles and develops a behavioral typology of five bank responses: recovery, containment, repricing, reallocation, and relational transformation. Responses vary by risk type, visibility, and salience. Acute, unexpected physical risks (nine studies) trigger recovery lending, while expected (five) or chronic risks (12) lead to containment or repricing. Transition risks (42) are more consistently priced when indicators are quantifiable and policy-aligned; softer ESG signals elicit conditional responses. Asymmetries arise: recovery and containment occur only for physical risks, while strategic reallocation remains rare. Carbon-intensive firms are penalized, while green firms benefit only when performance is credible and verifiable. We propose a diagnostic framework to evaluate climate risk management in lending, providing a novel tool to assess climate risk integration in bank lending and inform regulatory design and sustainability-oriented strategy.
KW - bank lending
KW - climate risk
KW - cost of capital
KW - credit risk
KW - credit spreads
KW - transition risk
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=105015335918&partnerID=8YFLogxK
U2 - 10.1002/bse.70176
DO - 10.1002/bse.70176
M3 - Journal articles
AN - SCOPUS:105015335918
JO - Business Strategy and the Environment
JF - Business Strategy and the Environment
SN - 0964-4733
ER -