From climate chat to climate shock: non‐linear impacts of transition risk in energy CDS markets

Emanuele Campiglio, Luca De Angelis, Paolo Neri and Ginevra Scalisi

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: It is still unclear to what extent transition risks are being internalized by financial investors. In this paper, we provide a novel investigation of the impact of media‐based measures of transition risks on the credit risk of energy companies, as measured by their credit default swaps (CDS) indices. We include both European and North American markets in the 2010–2020 period. Using linear and non‐linear local projections, we find that a transition risk shock affects CDS indices only when combined with tangible physical climate‐related impacts. We also find evidence of non‐linear cross‐border effects, with North American energy companies particularly affected by European dynamics. We suggest that the public reaction in the wake of severe climate‐related disasters, which might push policymakers to adopt more decisive climate action, contributes to making the transition‐related debate salient in the eyes of credit market actors.

Keywords: climate change; credit risk; transition risk; disasters; credit default swaps (search for similar items in EconPapers)
JEL-codes: C32 G12 Q43 Q54 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2025-04-01
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Published in Environmetrics, 1, April, 2025, 36(3). ISSN: 1180-4009

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:127807

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