Pricing Climate Change Risk in Corporate Bonds

51 Pages Posted: 7 Apr 2021 Last revised: 8 Apr 2021

See all articles by Elsa Allman

Elsa Allman

French Banking Supervisory Authority; Banque de France

Date Written: March 31, 2021


Using a firm’s geographic footprint to measure its exposure to sea level rise (SLR), I find that corporate bonds bear a climate risk premium upon issuance. A one standard deviation increase in firms’ SLR exposure is associated with a 7 basis point premium, representing a 3% increase in average yield spread. This effect is more pronounced for geographically concentrated firms, within industries vulnerable to extreme weather conditions, and after the Paris Agreement. I do not find evidence that credit rating agencies account for SLR exposure at bond issuance. Results are robust to placebo tests and inverse propensity weighting to address possible endogeneity.

Keywords: Climate Risk, Corporate Bonds, Sea Level Rise

JEL Classification: Q54, G14, G24 L51

Suggested Citation

Allman, Elsa, Pricing Climate Change Risk in Corporate Bonds (March 31, 2021). Available at SSRN: or

Elsa Allman (Contact Author)

French Banking Supervisory Authority ( email )


Banque de France ( email )


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