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

Author

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  • Martijn A. Boermans
  • Maurice Bun
  • Yasmine van der Straten

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.

Suggested Citation

  • Martijn A. Boermans & Maurice Bun & Yasmine van der Straten, 2024. "Funding the Fittest? Pricing of Climate Transition Risk in the Corporate Bond Market," Working Papers 797, DNB.
    • Handle: RePEc:dnb:dnbwpp:797
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    References listed on IDEAS

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    Cited by:

    1. Fricke, Daniel & Meinerding, Christoph, 2024. "Who pays the greenium and why? A decomposition," Discussion Papers 41/2024, Deutsche Bundesbank.
    2. Lalwani, Vaibhav, 2024. "Climate risks, corporate bonds, and economic uncertainty," Economics Letters, Elsevier, vol. 244(C).

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    More about this item

    Keywords

    Climate Change; Climate Transition Risk; Carbon Premium; Greenium; Green Innovation; Green Patents; Institutional Investors; Institutional Ownership;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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