Carbon Risk and Syndicated Loans: A Network Analysis Approach

ABSTRACT As the transition to a low‐carbon economy accelerates, understanding how climate‐related risks propagate through the financial system has become a central concern for regulators and researchers alike. Transition risk—the risk arising from the shift toward lower‐emission business models—is not directly borne by banks but may indirectly affect financial intermediaries through their lending portfolios. As firms face increasing pressure to comply with climate regulations, their credit risk increases, potentially threatening the stability of the broader financial system. This study examines how carbon emissions are financed by financial institutions in the syndicated loan market and whether a bank's structural position in that market is associated with its exposure to transition risk. Using a sample of 6924 syndicated loans from DealScan for 2018, we constructed a directed weighted network of lenders and borrowers and computed three financed emissions metrics calibrated on equivalent data from Eikon and financial data from Orbis. Network centrality measures—including eigenvector, betweenness, and degree centrality—are then correlated with each metric. The results show that more central financial intermediaries are positively and significantly associated with higher shares of financed emissions across all centrality measures, with correlations of the order of 60%. Replicating the analysis on the 2025 vintage of the network yields consistent results, indicating that this association is a stable structural feature of the syndicated loan market rather than an artifact of a single year. Several robustness checks confirm the main findings. The results are relevant for both lenders and borrowers as well as regulators, given the results' systemic implications.