Pricing climate transition risk: Evidence from European corporate CDS

Arbeitspapier

The European low-carbon transition began in the last few decades and is accelerating to achieve net-zero emissions by 2050. This paper examines how climate-related transition indicators of a large European corporate firm relate to its CDS-implied credit risk across various time horizons. Findings show that firms with higher GHG emissions have higher CDS spreads at all tenors, including the 30-year horizon, particularly after the 2015 Paris Agreement, and in prominent industries such as Electricity, Gas, and Mining. Results suggest that the European CDS market is currently pricing, to some extent, albeit small, the exposure to transition risk for a firm across different time horizons. However, it fails to account for a company's efforts to manage transition risks and its exposure to the EU Emissions Trading Scheme. CDS market participants seem to find challenging to risk-differentiate ETS-participating firms from other firms.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 387

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Central Banks and Their Policies ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Valuation of Environmental Effects ; General Equilibrium and Disequilibrium: Financial Markets
• Thema: climate change ; transition risk ; credit risk ; credit default swap ; emissionstrading system (ETS) ; financial markets

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Vozian, Katia ; Costola, Michele
• Ereignis: Veröffentlichung
• (wer): Leibniz Institute for Financial Research SAFE
• (wo): Frankfurt a. M.
• (wann): 2023

Weitere Informationen

• DOI: doi:10.2139/ssrn.4463630
• Handle: http://hdl.handle.net/10419/271518
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ