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Currently I am wondering if there is any link between the default risk of an organisation and it's carbon footprints.

Currently there are many regulations coming to address the climate risk most notably in Euro region. So any research paper linking default risk with such regulations will be really helpful.

Many thanks for your insight.

Regards,

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While not directly carbon footprint but environmental performance:

Bauer & Hann (2010) Corporate environmental management and credit risk Findings: Environmental concerns are associated with a higher cost of debt finacing and lower credit ratings. Proactive management can lower the cost of debt; banks and investors add risk and liquidity premiums for higher default risk associated with poor environmental management.

Schneider (2011) Is environmental performance a determinant of bond pricing Findings: Significant relation between environmental performance and bond yields.

Graham and Maher (2006) Environmental liabilities, bond ratings and bond yields Findings: Environmental liabilities have direct effect on bond yields, and influence bond ratings

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I think it would be interesting. The concern that I have is that why carbon footprints would affect the organization's default risk? Do you expect that higher carbon footprints to be associated with a higher default risk or lower default risk? Personally, the carbon footprints vary hugely from industry to industry, for example, automotive manufacturing and high-tech companies would show different carbon footprints. It would be hard to explain the mechanism.

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  • $\begingroup$ I am not sure. I am looking for such discussion, empirical study etc. $\endgroup$
    – Bogaso
    Commented May 11, 2021 at 5:30

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