Abstract
We examine the impact of a borrower's vulnerability to drought risks on loan contracts in the mining industry. Our analysis of a sample of 675 loans between 1995 and 2018 demonstrates that mining companies that are impacted by droughts face significantly higher loan spreads. Additionally, we find that the association between drought exposure and loan spreads is more pronounced for larger and longer-term loans. These findings provide evidence that externalities from climate-related events are relevant in the private debt market and that banks consider climate risks when making lending decisions to borrowers who cannot mitigate the risks through relocation, such as those in the mining industry.
Published Version
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