Climate-related Transition and CDS-implied Credit Risk

Category: Finance Brown Bag Seminar
When: 26 Januar 2022
, 14:00
 - 15:00
Where: online
Speaker: Katia Vozian (Helsinki GSE & Hanken School of Economics)

Title: Climate-related Transition and CDS-implied Credit Risk

Abstract: The energy transition to a low-carbon economy has a time horizon of circa 30 years (EU NetZero 2050). In this paper, I aim to identify how the exposure to transition risk, as proxied by green house gas (GHG) emissions, relate to the firm's CDS- implied credit risk. Particularly, given the issues on data availability and reliability in the area of climate-related transition, I explore data from different providers. Furthermore, given the challenge of measuring climate-related transition risk in credit risk at longer time horizon, I construct four datasets merging CDS spreads with time horizon 1-5-10-30 years to energy-transition-related factors and to traditional determinants of CDS spreads. The resulting samples cover around 200 non-financial European firms in the period from 2010 to 2020. Preliminary results show that higher GHG emissions scope 1 relate to higher credit risk, irrespective of the data provider, and the magnitude of the relation diminishes at credit risk time horizons of 10 and 30 years, although the relation still remains significant.