The impact of environmental risk on the UK banking sector

The aim of this paper is to examine the tensions that face the UK banking sector in assessing and managing credit risks associated with actual or potential environmental damage arising from the activities of borrowers. It was found that banks were more concerned with the reputational effects associated with lending to a polluter than with credit risk assessment. Concern exists with the potential legal risks arising from the application of the principle of joint and several liability by courts in cases involving environmental damage caused by borrowers. The paper concludes that further research is required on the role of (a) the supply chain in credit risk assessment and (b) partnership contracts between borrower, lender and environmental agencies.