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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Andreas G. F. Hoepner & Johannes Klausmann & Markus Leippold & Jordy Rillaerts, 2023. "Beyond Climate: The Impact of Biodiversity, Water, and Pollution on the CDS Term Structure," Swiss Finance Institute Research Paper Series 23-10, Swiss Finance Institute, revised May 2023.
    • Handle: RePEc:chf:rpseri:rp2310
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    More about this item

    Keywords

    Double materiality; EU Taxonomy; infrastructure; term structure.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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