Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266098 
Year of Publication: 
2022
Series/Report no.: 
Staff Report No. 1014
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Investor concerns about climate and other environmental regulatory risks suggest that these risks should affect corporate bond risk assessment and pricing. We test this hypothesis and find that firms with poor environmental profiles or high carbon footprints tend to have lower credit ratings and higher yield spreads, particularly when their facilities are located in states with stricter regulatory enforcement. Using the Paris Agreement as a shock to expected climate risk regulations, we provide evidence that climate regulatory risks causally affect bond credit ratings and yield spreads. Accordingly, the composition of institutional ownership also changes after the Agreement.
Subjects: 
climate risk
regulatory risk
fixed income
JEL: 
G38
G24
G00
Document Type: 
Working Paper

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