Is Climate Transition Risk Priced into Corporate Credit Risk? Evidence from Credit Default Swaps

Andrea Ugolini, Juan Reboredo and Javier Ojea Ferreiro

Staff Working Papers from Bank of Canada

Abstract: We study whether the credit default swap (CDS) spreads of firms reflect the risk from climate transition. We first construct a climate transition risk (CTR) factor by using information on the vulnerability of a firm’s value to the transition to a low-carbon economy. We then document how this factor shifts the term structure of the CDS spreads of more vulnerable firms but not of less vulnerable firms. Considering the impact of different climate transition policies on the CTR factor, we find that these policies have asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on other firms.

Keywords: Climate change; Credit risk management; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: C24 G12 G32 Q54 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-07
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env and nep-rmg
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Related works:
Journal Article: Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps (2024)
Working Paper: Is Climate Transition Risk Priced into Corporate Credit Risk? Evidence from Credit Default Swaps (2023)
Working Paper: Is Climate Transition Risk Priced into Corporate Credit Risk? Evidence from Credit Default Swaps (2023)
Working Paper: Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-38

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