Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets

Daniel Kim and Sébastien Pouget

No 23-1472, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We empirically study whether carbon emissions affect firms’ cost of capital raised on conventional bond markets. We find that firms with higher carbon emissions face higher spreads in the secondary market but not in the primary market. We show that this gap is related to uncertainty about climate concerns that affects differently primary and secondary market. This gap is also affected by the reputation of underwriting dealers: high reputation promotes the incorporation of climate concerns into bond yields. Our findings imply that, on average, carbon emissions do not affect the cost of capital in bond markets, thereby reducing firms’ financial incentives for decarbonization.

Keywords: Climate finance; Carbon premium; Bond markets; Green investors; Underwriting dealers (search for similar items in EconPapers)
JEL-codes: G12 G41 (search for similar items in EconPapers)
Date: 2023-09, Revised 2025-11
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env and nep-ger
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:128527

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