Taking Advantage of Media Attention to Climate Change: CLOs' Trading of Brown Loans

43 Pages Posted: 1 Feb 2023 Last revised: 26 Jun 2024

See all articles by Kathrin Hackenberg

Kathrin Hackenberg

Catholic University of Eichstaett-Ingolstadt

Viktoria Klaus

Karlsruhe Institute of Technology

Sven Klingler

BI Norwegian Business School

Talina Sondershaus

Lund University School of Economics and Management

Date Written: June 26, 2024

Abstract

We show in this paper that Collateralized Loan Obligations (CLOs) - the main investors in leveraged loans - take advantage of heightened media attention to climate change. As starting point of our analysis, we document loans of firms in carbon-intensive industries trade at a discount during times of elevated attention to climate change. CLOs take advantage of these price discounts by tilting their portfolios toward carbon-intensive industries. Commitments to consider environmental factors by signing the principles of responsible investing (PRI) do not affect this portfolio tilting. Hence, CLOs are one investor class who purchases from investors who divest from brown industries.

Keywords: climate change, sustainable investing, private markets, leveraged loans, institutional investors, shadow banks, non-banks, CLOs, Paris Agreement

JEL Classification: G11, G14, G23, Q51

Suggested Citation

Hackenberg, Kathrin and Klaus, Viktoria and Klingler, Sven and Sondershaus, Talina, Taking Advantage of Media Attention to Climate Change: CLOs' Trading of Brown Loans (June 26, 2024). Available at SSRN: https://ssrn.com/abstract=4344497 or http://dx.doi.org/10.2139/ssrn.4344497

Kathrin Hackenberg

Catholic University of Eichstaett-Ingolstadt

Viktoria Klaus (Contact Author)

Karlsruhe Institute of Technology ( email )

Germany

Sven Klingler

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Talina Sondershaus

Lund University School of Economics and Management ( email )

Lund

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