38 Pages Posted: 25 Jan 2016
Date Written: January 21, 2016
In this paper, we investigate the effect of voluntary carbon emissions disclosure on the cost of debt of publicly listed firms. Using a unique and comprehensive database on carbon emissions from CDP (formerly "The Carbon Disclosure Project"), we study whether firms which choose to voluntarily disclose their carbon emissions enjoy more favorable lending conditions – in the form of lower spreads on their bank loans – than their non-disclosing counterparts. Our empirical results reveal a significant and negative relation between voluntarily disclosing carbon emission levels and the cost of bank loans for informationally opaque borrowers. Furthermore, we find that higher industry- and firm-size-adjusted carbon emissions have a positive and significant effect on loan spreads. These effects are common to all loans and not limited to loans which have been arranged by norms-constrained lenders suggesting that spread premia are driven by environmental risks rather than investor preferences.
Keywords: Carbon disclosure, carbon emissions, cost of debt, loan spreads
JEL Classification: A13, G21, Q51
Suggested Citation: Suggested Citation
Kleimeier, Stefanie and Viehs, Michael, Carbon Disclosure, Emission Levels, and the Cost of Debt (January 21, 2016). Available at SSRN: https://ssrn.com/abstract=2719665 or http://dx.doi.org/10.2139/ssrn.2719665