This study examines how nature-related risks are considered in syndicated lending, showing that firms highly dependent on ecosystem services (nature-dependent firms) incur higher financing costs. Using U.S. syndicated loan data and a novel nature dependency measure, we find a 1% rise in nature dependency results in a 0.21% increase in loan spreads. Leveraging the 2019 Endangered Species Act (ESA) amendment as an exogenous shock, we show regulatory relaxation lowered spreads for nature-dependent firms. Regulating ecosystem services – vital to environmental stability – exert the most influence on lending costs, suggesting that natural capital risks are increasingly internalized by financial markets. We also highlight the role of growth potential and refinancing risk in how banks price nature dependency of borrowers.
