Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267249 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 10016
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Using Credit Default Swap spreads, we construct a forward-looking, market-implied carbon risk factor and show that carbon risk affects firms' credit spread. The effect is larger for European than North American firms and varies substantially across industries, suggesting the market recognises where and which sectors are better positioned for a transition to a low-carbon economy. Moreover, lenders demand more credit protection for those borrowers perceived to be more exposed to carbon risk when market-wide concern about climate change risk is elevated. Finally, lenders expect that adjustments in carbon regulations in Europe will cause relatively larger policy-related costs in the near future.
Subjects: 
climate change
carbon risk
credit risk
Credit Default Swap spreads
JEL: 
C21
C23
G12
G32
Q54
Document Type: 
Working Paper
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