Beyond Climate: The Impact of Biodiversity, Water, and Pollution on the CDS Term Structure

Andreas G. F. Hoepner, Johannes Klausmann, Markus Leippold and Jordy Rillaerts
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Andreas G. F. Hoepner: Smurfit Graduate Business School, University College Dublin; European Commission's Platform on Sustainable Finance
Johannes Klausmann: ESSEC Business School
Markus Leippold: University of Zurich; Swiss Finance Institute
Jordy Rillaerts: University of Zurich - Department of Banking and Finance; Swiss Finance Institute

No 23-10, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the impact of three non-climate environmental criteria: biodiversity, water, and pollution prevention, on infrastructure firms’ credit risk term structure from the perspective of double materiality. Our findings show that firms that effectively manage these three environmental risks to which they are materially exposed have up to 93bps better long-term refinancing conditions compared to the worst-performing firms. While the results are less significant for the firm’s material impact on the environment, investors still reward the management of these criteria beyond climate with improved long-term financing conditions for infrastructure investments. Overall, we find that financial markets respond positively to the prospect of more stringent regulations related to these criteria, which are currently used by the EU Taxonomy to assess the sustainability of investments.

Keywords: Double materiality; EU Taxonomy; infrastructure; term structure. (search for similar items in EconPapers)
JEL-codes: G12 G18 G32 M14 Q52 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-02, Revised 2023-05
New Economics Papers: this item is included in nep-agr, nep-cfn, nep-env and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2310

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