How Does “Climate Risk” Relate To “Credit Risk”?

A large part of Canada’s economy is dependent on the extraction of fossil fuels. While some may associate the oil and gas industry with healthy financial returns and profitability, the resource extraction industry is facing risks. Risks that can come the in the form of climate change, carbon pricing, changing government regulations and stranded assets.

In addition to environmental and social consequences, these risks also have financial consequences – who would want to lend money to a company that may go out of business or become unprofitable if public opinion or government policy shifts away from fossil fuels? How can banks and financers avoid “climate risk” and “credit risk”?

Schulich School of Business Professor Olaf Weber (CIBC Chair in Sustainable Finance) has been researching this topic and has some insights to share on fossil fuels, sustainable finance and more on the next episode of the Research @ Schulich podcast

Works/Studies Mentioned In The Episode

Hunt, C., & Weber, O. (2019). Fossil fuel divestment strategies: Financial and carbon related consequences. Organization & Environment, 32(1), 41–61. https://doi.org/10.1177/1086026618773985

Oyegunle, A., Weber, O., & ElAlfy, A. (2023). Carbon Costs and Credit Risk in a Resource-Based Economy: Carbon Cost Impact on the Z-Score of Canadian TSX 260 Companies. Journal of Management and Sustainability, 13(1). https://doi.org/10.5539/jms.v13n1p187