Transmission Effect of Insurers' Climate Risk Disclosures on Their Corporate Bond Investees' Environmental Friendliness

Abstract

We investigate how insurers' mandatory climate risk disclosure affects their corporate bond investees' environmental friendliness. Exploiting the adoption of the Climate Risk Disclosure Survey (CRDS), we find that the adoption reduces investees' carbon emissions if CRDSaffected insurers are significant owners of the investees' bonds. The reduction is more pronounced when affected insurers and investees experience stronger public pressure about climate issues, when affected insurers are more likely to closely monitor their investees, and when investees depend more on bond financing. The reduction seems to be mostly driven by affected insurers who tend to engage with their investees about climate-change issues. Overall, our study presents new causal evidence showing how mandatory climate risk disclosure among investors can have a significant transmission effect on their investees' environmental friendliness.

Keywords: mandatory climate risk disclosure, environmental performance, carbon emissions, investor-to-investee transmission effects JEL Classification: G11, Insurer

JEL Classification: G11, G22, G28, G30, Q54