Environmental Risk and Lending Practices
Underwriting Environmental Risk
Incorporating Environmenal Concerns in Lending Practices

Principal Investigators
MIT: T.Riddiough, H.Pollakowsky, L.Bacow
ETH: R.Scholz, O.Weber
UT: T.Iwami
TARU (New Dehli, India): A.Revi, R.Roy, V.Nangia
Cleveland State Univ.: A.Simons

Wise investors profit by taking prudent risks. Increasingly, one of the risks firms (and investors) are exposed to is environmental risk. This risk may take many forms including the potential for increasing costs due to stricter governmental regulation of the by-products of production, disruption in the availability of key factor inputs due to materials scarcity or regulatory fiat etc. While firms and investors are far more aware of environmental risks today than they were ten years ago, no systematic methodology exists today to guide investors in underwriting environmental risk.

Project 1: "Underwriting Environmental Risk"
To understand how lenders and other investors underwrite or evaluate environmental risk. In addition to producing a series of cases, the goal of the project is to better understand how principles of sustainability might be incorporated into the routing processes of investment analysis.

Project 2: "Incorporating Environmental Concerns in Lending Practices"
To understand how environmental consideration influences lending practices by financial institutions. The focus lies on investment decisions concerning companies, projects and real estates. In addition to case studies, the goal is to better understand how principles of sustainability might be incorporated into the routine of lending processes to reach an advantage for the environment and the competitiveness of lending institutions.

Banks very seldom use quantitative indicators to measure the environmental risks of their debtors.