Title: Environmental accounting and the banking sector: a framework for measuring environmental-financial risks

Authors: K.I. Evangelinos, I.E. Nikolaou

Addresses: Department of Environment, University of the Aegean, University Hill, Xenia Building, Lesvos, 81-100, Greece. ' Department of Environment, University of the Aegean, University Hill, Xenia Building, Lesvos, 81-100, Greece

Abstract: Environmental issues present the banking sector with a new challenge. Banks can face financial risks from borrowers defaulting on the repayment of their loans because of fines imposed for poor environmental performance. Indeed, current environmental regulations can make banks liable for environmental damage caused by borrowers. Banks, therefore, aim to minimise these risks with the introduction of environmental criteria into their lending decision-making. These criteria are often based on firms| environmental reports, compiled on a voluntary basis. However, the lack of a common reporting baseline may mean that different information is provided by different industries and countries, a fact that prevents banks from estimating the full risk premium of environmentally vulnerable firms in a standardised and comparable format. Thus, this paper aims to propose a new methodology for measuring the environmental risks of firms to meet the requirements of the financial sector. Specifically, this methodology aims to standardise and quantify this information in an effort to reveal both to the banks as well as interested stakeholders the true environmental risk arising from firms| operations.

Keywords: environmental risks; banking sector; accounting sustainability; environmental accounting; environmental performance; environmental regulations; bank liability; environmental damage; environmental criteria; lending decisions; risk assessment.

DOI: 10.1504/IJSSCI.2009.026547

International Journal of Services Sciences, 2009 Vol.2 No.3/4, pp.366 - 380

Published online: 19 Jun 2009 *

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