Climate change and credit risk

By Giusy Capasso, Gianfranco Gianfrate, Marco Spinelli. Journal of Cleaner Production, 2020

355 citations recorded by the source corpus.

Abstract We investigate the relationship between exposure to climate change and firm credit risk. We show that the distance-to-default, a widely used market-based measure of corporate default risk, is negatively associated with the amount of a firm’s carbon emissions and carbon intensity. Therefore, companies with high carbon footprint are perceived by the market as more likely to default, ceteris paribus. The carbon footprint decreases the distance-to-default following shocks - such as the Paris Agreement - that reveal policymakers’ intention to implement stricter climate policies. Overall, these results indicate that the exposure to climate risks affects the creditworthiness of loans and bonds issued by corporates. Financial regulators and policymakers should consider carefully the impact of climate change risks on the stability of both lending intermediaries and corporate bond markets.

Subfields: Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a2da047588f5610b91d5b7ac0320db595a66502e

Citations in the corpus

• Green bonds as a tool against climate change? (2021, neutral): “More generally, Capasso et al. (2020) show that companies with high-carbon footprint are perceived by the market as more likely to default, ceteris paribus, particularly after the Paris Agreement. This supports the view that climate change exposure is not only increasingly priced but also affects th”