Pricing climate change risk in corporate bonds

Elsa Allman ()
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Elsa Allman: French Central Bank

Journal of Asset Management, 2022, vol. 23, issue 7, No 5, 596-618

Abstract: Abstract Using a firm’s geographic footprint to measure its exposure to sea level rise (SLR), I find that corporate bonds bear a climate risk premium upon issuance. A one standard deviation increase in firms’ SLR exposure is associated with a 7 basis point premium, representing a 3% increase in average yield spread. This effect is more pronounced for geographically concentrated firms, within industries vulnerable to extreme weather conditions, and after the Paris Agreement. I do not find evidence that credit rating agencies account for SLR exposure at bond issuance. Results are robust to placebo tests and inverse propensity weighting to address possible endogeneity.

Keywords: Climate risk; Corporate bonds; Sea level rise (search for similar items in EconPapers)
JEL-codes: G14 G24 L51 Q54 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/s41260-022-00294-w

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