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HomePaperFunding de Fittest? Pricing of Climate Transition Risk in the Corporate Bond Market

Funding de Fittest? Pricing of Climate Transition Risk in the Corporate Bond Market

11 January 2024
Authors: Yasmine Van der Straten (University of Amsterdam), Maurice Bun (De Nederlandsche Bank/University of Amsterdam) and Martijn Boermans (De Nederlandsche Bank)
Presenter: Yasmine Van der Straten (University of Amsterdam)
Abstract:

We study whether climate transition risk is priced in corporate bond markets. We assess whether corporate bond investors value companies’ efforts to mitigate climate change by innovating in the green space. By combining global firm-level data on greenhouse emissions and green patents with bond-level holdings data, we provide evidence of a positive transition risk premium, which is significantly lower for emission intensive companies that engage in green innovation. The joint effect of emission intensity and green innovation on bond yield spreads is driven by European investors, specifically institutional investors. Overall, our results indicate that investors care about whether companies are ‘fit’ for the green transition.

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