The effect of environmental sustainability on credit risk

André Höck (), Christian Klein, Alexander Landau and Bernhard Zwergel
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André Höck: University of Kassel
Christian Klein: University of Kassel
Alexander Landau: University of Kassel
Bernhard Zwergel: University of Kassel

Journal of Asset Management, 2020, vol. 21, issue 2, No 1, 85-93

Abstract: Abstract The European Commission has proposed establishing a framework that redirects capital to sustainable investments in order to foster sustainable economic growth. A key proposal from this framework is the mandatory consideration of environmental criteria for investment decisions. However, in particular for bond investors, there is not much academic guidance on how to integrate sustainability criteria in the investment process. Hence, this study investigates the impact of environmental sustainability on the pricing of credit risk for European corporations. Furthermore, whether or not the credit worthiness of a corporation has a moderating effect on the relationship between the environmental sustainability and the credit risk premium is analyzed. The findings prove that more sustainable companies have lower credit risk premiums if they also have a high credit worthiness.

Keywords: Sustainability; Environment; Default risk measurement; CDS spreads (search for similar items in EconPapers)
JEL-codes: G12 G32 M14 Q51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (13)

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DOI: 10.1057/s41260-020-00155-4

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