Climate Regulatory Risks and Corporate Bonds

By Leon E. Seltzer, Laura T. Starks, Qifei Zhu. Social Science Research Network, 2020

184 citations recorded by the source corpus.

Examining how climate and other environmental regulatory risks affect bond risk and pricing, we find that bond credit ratings and yield spreads appear to be influenced by a firm's environmental performance along with its regulatory conditions. Firms with poor environmental profiles tend to have lower credit ratings and higher yield spreads, particularly when the firm is located in a state with more stringent environmental regulations. Using the Paris Agreement as a shock to expected climate regulation, we provide evidence of a causal relation between climate regulatory risks and the credit ratings and yield spreads of bonds with problematic environmental profiles.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/884d0988d75c1efc8cfeaf2e5fea4f6228060da5

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Citations in the corpus

The impact of climate change on the cost of bank loans (2020, unknown): “Prior research has shown that the adverse effect of climate risk is more pronounced for non-investment rated firms (Painter 2020; Fard et al. 2020; Seltzer et al. 2020).”
Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis (2021, unknown): “Other studies examine how environmental performance and risk affect the pricing of corporate bonds and the cost of capital (e.g., Chava, 2014; De Angelis et al., 2020; Eichholtz et al., 2019; Huynh et al., 2020; Seltzer et al., 2020).”
Climate Change News Risk and Corporate Bond Returns (2020, unknown): “Following Seltzer et al. (2020), we standardize the Sustainalytics ESCORE by subtracting the mean and dividing it by the standard deviation.”
Firms and social responsibility: A review of ESG and CSR research in corporate finance (2021, background): “Seltzer, Starks, and Zhu (2018) provide evidence that a firm’s bond credit ratings and yield spreads are related to environmental scores and to climate regulatory risk. Firms with poor environmental performance tend to have lower credit ratings and higher yield spreads, particularly if they are loca”
Climate Risk and Capital Structure (2019, unknown): “Several recent papers emphasize that climate risk affects the pricing of stocks, bonds and real estate (Berkman et al. 2019; Seltzer et al. 2019; Painter, 2019; and Bernstein et al. 2019).”