Pricing carbon risk: Investor preferences or risk mitigation?

Stefanie Kleimeier and Michael Viehs

Economics Letters, 2021, vol. 205, issue C

Abstract: Do banks charge an environmental premium when lending to publicly listed firms? Using a unique and comprehensive database on carbon emissions, we find that higher carbon emissions are associated with higher loan spreads. This effect exists for loans arranged by all lenders suggesting that spread premia are driven by environmental risks rather than investor preferences. Consistent with ex-post risk, companies without appropriate board-level responsibility pay higher spreads. While countries might introduce effective legislation to mitigate the effects of climate change, our results indicate that there is scope for a market-based solution to complement explicit environmental regulation.

Keywords: Carbon emissions; Cost of debt; Bank loans (search for similar items in EconPapers)
JEL-codes: G21 G32 Q51 Q54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002135

DOI: 10.1016/j.econlet.2021.109936

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