Climate litigation raises firms' bank loan costs

The European Central Bank working paper by Andreas Beyer and Lorenzo Nobile finds that climate-related litigation is priced into bank lending decisions.

• Main finding: Using a global sample of 5,264 syndicated loans to 329 firms (2006–2021) constructed from Dealogic, matched with climate cases from the Sabin Center, the authors find firms exposed to climate lawsuits pay about 3.89% higher loan spreads (Log(Spread) coefficient = 0.0382). Average observed spread ≈ 185 basis points, average deal size ≈ $1,836.35 million, and average maturity ≈ 4.676 years; exposed firms also receive smaller loan amounts and shorter maturities.

• Data & methods / other details: The study hand-matches lawsuit events (279 filings, 78 decisions; 120 novel filings) with Refinitiv/Datastream firm data, runs firm-, year-, bank-, country-, and deal-fixed-effects regressions, reports robustness including a continuous ClimateLitExposure (log) and a 2SLS IV using the industry-year average of climate lawsuits, and finds novel lawsuits (but not European-origin or government-plaintiff cases) are associated with larger borrowing cost increases.