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

56 Pages Posted: 17 Jan 2024

See all articles by Martijn Adriaan Boermans

Martijn Adriaan Boermans

De Nederlandsche Bank

Maurice Bun

De Nederlandsche Bank

Yasmine Van der Straten

University of Amsterdam - Amsterdam Business School

Date Written: January 15, 2024

Abstract

We study whether climate transition risk is priced in corporate bond markets and if investors value companies’ green innovation efforts. Using confidential bond-level holdings data and global firm-level data on carbon emissions and green innovation, we find a positive transition risk premium. This premium is smaller for emission-intensive firms that engage in green innovation, suggesting that investors value companies’ efforts to mitigate climate change. We show that European investors, in particular institutional investors, have a higher demand for bonds from emission-intensive firms that engage in green innovation and thus influence yield spreads related to climate transition risk.

Keywords: Climate Change, Climate Transition Risk, Carbon Premium, Greenium, Green Innovation, Institutional Investors, Bond Markets

JEL Classification: G12, G15, G23, Q51, Q54

Suggested Citation

Boermans, Martijn Adriaan and Bun, Maurice and Van der Straten, Yasmine, Funding the Fittest? Pricing of Climate Transition Risk in the Corporate Bond Market (January 15, 2024). De Nederlandsche Bank Working Paper No. 797, Available at SSRN: https://ssrn.com/abstract=4696871 or http://dx.doi.org/10.2139/ssrn.4696871

Martijn Adriaan Boermans (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Maurice Bun

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Yasmine Van der Straten

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.yasminevanderstraten.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
212
Abstract Views
750
Rank
273,605
PlumX Metrics