Estimating German Bank Climate Risk Exposure using the EU Emissions Trading System
ESG databases (such as Refinitiv) usually provide information about climate change exposure of large, publicly listed firms. Also other approaches using e.g. machine learning algorithm have to rely on reports published by publicly listed firms.
In our paper, Florian Hoffner and I take a different approach and use CO2 emission data reported in the EU Emissions Trading System (EU ETS). The data are reported on a plant-level basis and contain mainly small and medium enterprises (SME). We try to provide first estimates specifically for those SMEs (and thus privately-held firms) and therefore close an important data gap. While the database contains data from all European countries, we focus on Germany to assess the exposure of German banks to climate change. This approach can easily be extended to all European firms in the EU ETS.
The two main datasources for our research are
The EU ETS to provide plant-level emissions
Bureau van Dijk’s (BvD) Amadeus database to match firms to banks
Overall, our approach accounts for 61.25% of the German emissions covered under the EU ETS. We document that only 19 German banks concentrate 95.88% of the total CO2 emissions in their portfolios (while we group all savings banks into one “bank”).
We provide a list of firms with the largest emissions as well as a list of banks with the largest exposures for the most recent available time-period. We also provide a historical overview. In the Appendix, we provide a detailed approach how to aggregate plant-level to firm-level data and how to map EU ETS to BvD Amadeus. The paper can be downloaded here.
This note provides a methodology how to construct data related to climate change exposures for small firms and small banks. In our follow-on work, we apply this method to investigate the implications of small / regional banks exposure to climate change for their overall loan portfolio and for economic growth in their respective region.
I hope you find this approach interesting and please reach out
if you have questions.