The financial crisis led regulatory organizations to stress the requirement for robust systems that control risks in financial institutions (FSB, 2023). Financial regulation now extends its emphasis beyond classic risk fields to include sustainability, in its environmental, social, and governance (ESG) dimensions, over the last years. The European Banking Authority (EBA), together with other institutions, promotes the implementation of ESG risk management into banks’ operations through updated disclosure practices (EBA, 2020). The environmental component of ESG stands out because climate-related physical and transitional threats jeopardize financial institution stability (BIS, 2020). Our research evaluates how board members controlling climate change exposures affect bank default probability assessed at market values. The analysis determines that banks showing active inclusion of climate-related governance dimensions experience lower default risks in comparison to other institutions. Bank groups, based on their levels of proactive climate risk management, are analyzed through environmental performance monitoring systems and boardroom oversight responsibilities
ESG Governance and Probability of Default: The Role of Climate Risk Management in Banking
Mariantonietta Intonti
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2026-01-01
Abstract
The financial crisis led regulatory organizations to stress the requirement for robust systems that control risks in financial institutions (FSB, 2023). Financial regulation now extends its emphasis beyond classic risk fields to include sustainability, in its environmental, social, and governance (ESG) dimensions, over the last years. The European Banking Authority (EBA), together with other institutions, promotes the implementation of ESG risk management into banks’ operations through updated disclosure practices (EBA, 2020). The environmental component of ESG stands out because climate-related physical and transitional threats jeopardize financial institution stability (BIS, 2020). Our research evaluates how board members controlling climate change exposures affect bank default probability assessed at market values. The analysis determines that banks showing active inclusion of climate-related governance dimensions experience lower default risks in comparison to other institutions. Bank groups, based on their levels of proactive climate risk management, are analyzed through environmental performance monitoring systems and boardroom oversight responsibilitiesI documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
