A0392
Title: Transition factors and market-implied credit risk
Authors: Michele Costola - Ca' Foscari University of Venice (Italy) [presenting]
Katia Vozian - Hanken School of Economics (Finland)
Abstract: The energy transition to a low-carbon economy has a time horizon of c. 30 years (EU NetZero 2050). We aim to identify which environmental factors pertaining to the low-carbon transition of a firm relate to the firm market-implied credit risk and how. We construct four datasets merging CDS spreads with time horizon 1-5-10-30 years to E-transition factors and to traditional determinants of CDS spreads. The resulting samples cover over 200 non-financial European firms in the period from 2010 to 2020. We analyze in a panel regression the relation between credit risk, as proxied by CDS spread, and emissions data over short and long-term time horizons. 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 time horizons of 10 and 30 years, although is still significant.
