The low-carbon transition, climate commitments and firm credit risk

Sante Carbone (), Margherita Giuzio, Sujit Kapadia, Johannes Sebastian Krämer (), Ken Nyholm () and Katia Vozian ()
Additional contact information
Sante Carbone: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Johannes Sebastian Krämer: European Central Bank
Ken Nyholm: European Central Bank
Katia Vozian: European Central Bank, Helsinki Graduate School of Economics, Hanken School of Economics, Leibniz Institute for Financial Research SAFE

No 409, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper explores how the need to transition to a low-carbon economy influences credit risk. It develops a novel dataset covering firms’ greenhouse gas emissions over time alongside information on strategies for managing transition risk, includ ing climate disclosure practices and forward-looking emission reduction targets. It assesses how such metrics influence firms’ credit ratings and their market-implied distance-to-default. High emissions tend to be associated with higher credit risk. But disclosing emissions and setting emission reduction targets are associated with lower credit risk, with the effect somewhat stronger for more ambitious climate commitments. After the Paris agreement, firms most exposed to transition risk also saw their ratings deteriorate relative to otherwise comparable firms, with the effect larger for European than US firms, probably reflecting differential climate policy expectations. These results have policy implications for corporate disclosures and strategies around climate change, and the treatment of climate-related transition risk in the financial sector.

Keywords: climate change; transition risk; disclosure; net zero; green finance; credit risk (search for similar items in EconPapers)
JEL-codes: C58 E58 G11 G32 Q51 Q56 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2022-01-01
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The low-carbon transition, climate commitments and firm credit risk (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0409

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