Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312432 
Year of Publication: 
2025
Series/Report no.: 
SAFE Working Paper No. 442
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
This paper explores how the low-carbon transition affects firms' credit ratings and market-implied distance-to-default. We develop a novel dataset covering firms' greenhouse gas emissions alongside climate disclosure and forward-looking emission reduction targets. Panel regression analysis indicates that high emissions are associated with higher credit risk, but that this relationship can be mitigated by disclosing emissions and committing to reduce emissions. After the Paris agreement, firms most exposed to transition risk saw their ratings deteriorate relative to their peers, with the effect larger for European than US firms, probably reflecting differential climate policy expectations. A dynamic difference-in-differences approach also shows that European firms who make a climate commitment subsequently experience an improvement in their credit rating relative to comparable firms who do not set a target. These results have policy implications for corporate disclosure and pricing of transition risk.
Subjects: 
climate change
transition risk
climate disclosure
net zero targets
green finance
credit risk
JEL: 
C58
E58
G11
G32
Q51
Q56
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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