Did We Open The Floodgates? Flood Damage And Infrastructure Loan Defaults

We provide a novel approach to estimating asset-level expected damage from flooding for 52 airports, ports, and power plants. We find that expected damage from flood increases the probability of default on infrastructure loans. We estimate expected damage from flooding using multiple damage functions to highlight the lenders’ attention to adaptation as a physical climate risk hedging strategy. We also assess expected damage from flooding using various climate scenarios to highlight lenders’ attention to the uncertainty introduced by climate change. We find limited evidence for the integration of adaptation and future climate scenarios in infrastructure loans probability of default