Does the CDS Market Reflect Regulatory Climate Risk Disclosures?

Kölbel, Julian F; Leippold, Markus; Rillaerts, Jordy; Wang, Qian

doi:10.2139/ssrn.3616324

Cited by 11 publications

(9 citation statements)

References 68 publications

(44 reference statements)

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“…Financial instruments correctly price-in risk in the absence of information asymmetries (Stiglitz and Grossman, (1976), and indicators that represent risk exposure could be used to assess the impact on financial performances. Evidence in Kolbel et. (2020), for instance, suggest that disclosed climate risk in mandatory documents increases default probability, while Cohen et al (2020) find that disclosure and data presented in mandatory filings contain information capable of predicting firms' financial performances.…”

Section: Literaturementioning

confidence: 88%

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Carbon Boards and Transition Risk: Explicit and Implicit exposure implications for Total Stock Returns and Dividend Payouts

Submitter¹,

Mazzarano

Guastella

et al. 2021

SSRN Journal

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The Security and Exchange Commission (SEC) has considered climate change as a risk issue since 2010. Several emission disclosure initiatives exist aimed at informing investors about the financial risks associated with a zero or low carbon transition. Stricter regulations, particularly in a few sectors, could affect operations costs, ultimately impacting companies financial performances, especially of listed companies. There are two ways these companies can disclose their transition risk exposure and are not alternatives. One is the explicit declaration of exposure to transition risk in the legally binding documents that listed companies must provide authorities. The other is the disclosure of GHG equivalent emissions, which is implicitly associated with transition risk exposure. This paper empirically analyses to what extent US companies stock returns incorporate information about transition risk by using explicit and implicit risk measures and comparing them. In addition, multiple total stock return measures distinguishing dividend payouts from simple stock returns. Results suggest that both explicit and implicit risks are positively related to dividend payouts and not to stock returns, while the overall effect on total stock returns is negative. Evidence supports the view that market operators price negatively the transition risk exposure and, probably as a consequence, boards in carbon intensive companies use dividend policies to attract investment in risky companies.

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Section: Literaturementioning

confidence: 88%

“…One relates the explicit statements of risk exposure documented in legally binding documents. This information can be used to trace explicit transition risk exposure (Kolbel et al, 2020). Mandatory filings such as the 10-K in the US represent the legally binding channel for explicit transition risk disclosure.…”

Section: Introductionmentioning

confidence: 99%

Carbon Boards and Transition Risk: Explicit and Implicit exposure implications for Total Stock Returns and Dividend Payouts

Submitter¹,

Mazzarano

Guastella

et al. 2021

SSRN Journal

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“…Model-based approaches include the commercial scores from Trucost (M1), Carbon 4 Finance (M2) and Southpole (M3). Language-based approaches include a commercial score from Truvalue Labs (L1), and two academic scores, Firm-level Climate Change Exposure (L2) (Sautner et al, 2020a) and BERT-based climate risk measure (L3) (Kölbel et al, 2020). L1 relies on news articles as a text source, L2 on earnings call's transcripts, and L3 on regulatory filings (see Table A.1 in the Appendix for details on the methodologies).…”

Section: Datamentioning

confidence: 99%

“…For L2, we select the physical risk exposure score. For L3 we use the physical risk score, computed in the same way as in Kölbel et al (2020).…”

Section: A2 Selection Of Comparable Scoresmentioning

confidence: 99%

Let's get physical: Comparing metrics of physical climate risk

2021

Self Cite

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Investors and regulators require reliable estimates of physical climate risks for decision-making. While assessing these risks is challenging, several commercial data providers and academics have started to develop firm-level physical risk scores. We compare six physical risk scores. We find a substantial divergence between these scores, also among those based on similar methodologies. We show how this divergence could cause problems when testing whether financial markets are pricing physical risks. Hence, financial markets may not adequately account for the physical risk exposure of corporations using available risk scores. Finally, we identify key sources of uncertainty for further investigation.

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“…al (2019) illustrated the institutional investors' views and preferences on climate risk disclosure in their study. Kolbel et. al (2021) discussed physical and transition climate risk in their research.…”

Section: Introductionmentioning

confidence: 99%

Building Sustainability Resiliency During Post Covid World Focusing ESG And Climate Risk Issue

Afreen

2021

IJSSER

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Purpose of this study: In accordance with the current world economy, building climate sustainability resiliency is very important under the physical risk and transitional risk mitigation. This classification of climate risks could have an enormous positive impact focusing on ESG (Environmental, Social and Corporate Governance) goal achievement during the post-COVID pandemic situation focusing on climate risk issues. The European Green Deal has also increased the EU’s climate ambitions. In addition, global cooperation on sustainable finance has increased and the international context has changed. The financial sector will play a critical role in our transition to sustainability.The strategy of this study aims to support the European Green Deal aims, as well as an inclusive and sustainable recovery from the COVID-19 pandemic consequences. Methodology: In this study, the relative carbon risk and absolute carbon risk is shown based on the dynamic common factor model. The graphical representation of absolute versus relative carbon risk is measured in this time series data based research on the ten years timeline of 2010 to 2019. Main findings: The study shows the graphical figure regardingregion-wise dynamics of the relative and absolute carbon emissions risk in an average by adopting the dynamic common factor model throughout the global level by obtaining the Kalman filtering tool. Research limitations/Implications: Lack of resources of primary data is the main creating hindering effect that is faced in this study. This article portrays the increase in CO2 emissions leading to consequences of climate risk also accelerating these problems within the regions and countries mentioned in this research. Novelty/Originality: Due to the COVID-19 outbreak, the developed nations, as well as emerging economies, are facing vulnerability in the area of financial, governmental, environmental to be sustainably resilient. This is the high time of detecting these problems and taking precautionary measures by the policymakers and government in the economic sector by adopting implementable methodologies. This study may benefit readers by advancing the existing knowledge or creating new knowledge in this subject. The current study reflects the situation of forthcoming researchers who intends to study as well as interested in this particular area.

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Does the CDS Market Reflect Regulatory Climate Risk Disclosures?

Cited by 11 publications

References 68 publications

Carbon Boards and Transition Risk: Explicit and Implicit exposure implications for Total Stock Returns and Dividend Payouts

Carbon Boards and Transition Risk: Explicit and Implicit exposure implications for Total Stock Returns and Dividend Payouts

Let's get physical: Comparing metrics of physical climate risk

Building Sustainability Resiliency During Post Covid World Focusing ESG And Climate Risk Issue

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