Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271518 
Year of Publication: 
2023
Series/Report no.: 
SAFE Working Paper No. 387
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
The European low-carbon transition began in the last few decades and is accelerating to achieve net-zero emissions by 2050. This paper examines how climate-related transition indicators of a large European corporate firm relate to its CDS-implied credit risk across various time horizons. Findings show that firms with higher GHG emissions have higher CDS spreads at all tenors, including the 30-year horizon, particularly after the 2015 Paris Agreement, and in prominent industries such as Electricity, Gas, and Mining. Results suggest that the European CDS market is currently pricing, to some extent, albeit small, the exposure to transition risk for a firm across different time horizons. However, it fails to account for a company's efforts to manage transition risks and its exposure to the EU Emissions Trading Scheme. CDS market participants seem to find challenging to risk-differentiate ETS-participating firms from other firms.
Subjects: 
climate change
transition risk
credit risk
credit default swap
emissionstrading system (ETS)
financial markets
JEL: 
G1
E58
G32
Q51
D53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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