Arbeitspapier
The low-carbon transition, climate commitments and firm credit risk
This paper explores how the need to transition to a low-carbon economy influences firm credit risk. It develops a novel dataset which augments data on firms' green-house gas emissions over time with information on climate disclosure practices and forward-looking emission reduction targets, thereby providing a rich picture of firms' climate-related transition risk alongside their strategies to manage such risks. It then assesses how such climate-related metrics influence two key measures of firms' credit risk: credit ratings and the market-implied distance-to-default. High emissions tend to be associated with higher credit risk. But disclosing emissions and setting a forward-looking target to cut emissions are both associated with lower credit risk, with the effect of climate commitments tending to be stronger for more ambitious targets. After the Paris agreement, firms most exposed to climate transition risk also saw their ratings deteriorate whereas other comparable firms did not, with the effect larger for European than US firms, probably reflecting differential expectations around climate policy. These results have policy implications for corporate disclosures and strategies around climate change and the treatment of the climate-related transition risk faced by the financial sector.
- ISBN
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978-92-899-4918-7
- Language
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Englisch
- Bibliographic citation
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Series: ECB Working Paper ; No. 2631
- Classification
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Wirtschaft
Central Banks and Their Policies
Portfolio Choice; Investment Decisions
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Valuation of Environmental Effects
Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Financial Econometrics
- Subject
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climate change
transition risk
disclosure
net zero
green finance
credit risk
- Event
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Geistige Schöpfung
- (who)
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Carbone, Sante
Giuzio, Margherita
Kapadia, Sujit
Krämer, Johannes Sebastian
Nyholm, Ken
Vozian, Katia
- Event
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Veröffentlichung
- (who)
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European Central Bank (ECB)
- (where)
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Frankfurt a. M.
- (when)
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2021
- DOI
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doi:10.2866/56399
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Carbone, Sante
- Giuzio, Margherita
- Kapadia, Sujit
- Krämer, Johannes Sebastian
- Nyholm, Ken
- Vozian, Katia
- European Central Bank (ECB)
Time of origin
- 2021
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Low-carbon competitiveness in Asia
Have you switched to a low-carbon diet? The ultimate value of low-carbon consumerism
Addressing Barriers to Low-Carbon Innovation
Low-Carbon Development through International Specialization
Low-carbon city and new-type urbanization : proceedings of Chinese Low-Carbon City Development International Conference
Enabling low-carbon development in poor countries
Financing the low-carbon transition in Europe
Socioeconomic Inequality in Low-Carbon Technology Adoption