The Pricing of Carbon Risk in Syndicated Loans: Which Risks Are Priced And Why

Banks are increasingly monitoring and estimating the carbon intensity of syndicated loan deals on a inter and intra-industry basis. While they are consistently capturing scope 1 emissions, aggregate syndicated loan data indicates that conventional banks, green banks and de facto green banks may be underestimating transition risk. While conventional and green banks exhibit similar carbon intensity measurement and pricing methodologies they face the risk of stranded assets if those methodologies do not capture the entire carbon footprint at a loan and portfolio level, according to the Bank for International Settlements (‘BIS’).