Biodiversity risks and lender credit allocation: The role of lenders’ commitments to environmental sustainability

Policy attention to banks’ role in halting biodiversity loss is growing, but centers on disclosure rather than lending practices. Using global loan-level data covering 7,918 syndicated loans issued between 2010 and 2023, we examine whether commitment to the United Nations Environment Programme Finance Initiative (UNEP FI) affects the amount of loans banks extend to borrowers exposed to biodiversity-related risks and their propensity to offload these loans on the secondary market. Such commitments create incentives and pressures beyond transparency and disclosure requirements that influence banks’ lending and portfolio decisions.

Biodiversity-related risks arise mainly through two channels: dependency and impact risk. Dependency risk is narrowly financially material because it directly affects borrowers’ cash flows and repayment capacity. Impact risk reflects double materiality, as it affects biodiversity itself and can also become financially material when borrowers’ environmental externalities generate reputational or regulatory risks.  Assessing whether UNEP FI–committed banks manage these risks differently from non-committed peers helps determine whether sustainability commitments lead to more proactive risk management. We measure borrowers’ biodiversity risk using firm-level impact and dependency indicators from Iceberg Data Lab and industry-level measures from ENCORE.

We find that higher dependency is associated with smaller loan amounts across all lenders. By contrast, impact risk is where commitments matter: UNEP-FI lenders extend less credit to borrowers with high bio impact. This pattern could reflect either post-membership adjustments or the possibility that future signatories are already ‘greener’. Our pre- and post-commitment analysis supports the former. We also show that lenders tend to offload high-impact exposures through the secondary loan market. This effect is driven primarily by cross-sector differences in biodiversity impact, rather than variations within sectors. Non-committed lenders do not adjust loans or rebalance portfolios in response to impact risk. In contrast to impact risk, dependency risk shows no significant effect on loan sales for either committed or non-committed banks.

Taken together, the findings suggest that committed lenders incorporate double materiality, while non-committed lenders focus solely on financial materiality. To the best of our knowledge, this is the first study of the role of sustainability commitments in shaping lenders’ integration of biodiversity risks.