Beyond Climate: The Impact of Biodiversity, Water, and Pollution on the CDS Term Structure

64 Pages Posted: 9 Feb 2023 Last revised: 27 Nov 2023

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission - DG FISMA

Johannes Klausmann

University of Virginia - Darden School of Business

Markus Leippold

University of Zurich; Swiss Finance Institute

Jordy Rillaerts

University of Zurich - Department of Finance; Swiss Finance Institute

Date Written: February 8, 2023

Abstract

We investigate the impact of three non-climate environmental criteria: biodiversity, water, and pollution prevention, on infrastructure firms' credit risk term structure from the perspective of double materiality. Our findings show that firms that effectively manage these three environmental risks to which they are materially exposed have up to 93bps better long-term refinancing conditions compared to the worst-performing firms. While the results are less significant for the firm's material impact on the environment, investors still reward the management of these criteria beyond climate with improved long-term financing conditions for infrastructure investments. Overall, we find that financial markets respond positively to the prospect of more stringent regulations related to these criteria, which are currently used by the EU Taxonomy to assess the sustainability of investments.

Keywords: Double materiality, EU Taxonomy, infrastructure, term structure.

JEL Classification: G12; G18; G32; M14; Q52

Suggested Citation

Hoepner, Andreas G. F. and Klausmann, Johannes and Leippold, Markus and Rillaerts, Jordy, Beyond Climate: The Impact of Biodiversity, Water, and Pollution on the CDS Term Structure (February 8, 2023). EFA 2023, Swiss Finance Institute Research Paper No. 23-10, Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 23-4, Available at SSRN: https://ssrn.com/abstract=4351633 or http://dx.doi.org/10.2139/ssrn.4351633

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission - DG FISMA ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Johannes Klausmann

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Markus Leippold (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Jordy Rillaerts

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

HOME PAGE: http://https://www.bf.uzh.ch/en/persons/rillaerts-jordy

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
Geneva
Switzerland

HOME PAGE: http://https://www.sfi.ch/en/people/jordy-rillaerts

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