Climate Risk and Credit Losses: A Global Perspective on Heterogeneous Impacts

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A 1% rise in the climate risk index correlates with a 0.17% increase in charge-off rates globally.
Increased climate risk leads to a notable rise in forward-looking loss rates in the energy and industrial sectors.
Enhancing institutional quality mitigates climate risk's impact on credit losses within the industrial sector.
Policy reforms, including climate adaptation funds and transitioning to renewable energy, may address financial risks.

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Analysis reveals climate risk affects credit loss rates in various sectors, suggesting institutional quality can mitigate impacts.

Nguyen et al. (2025) studied this question.

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