Effective environmental policy should consider how the financiers of polluting firms behave. In our theoretical model describing the periods before and after policy implementation, loan spreads for firms participating in cap-and-trade programs are a...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
VS 544
Fernleihe:
keine Fernleihe
Effective environmental policy should consider how the financiers of polluting firms behave. In our theoretical model describing the periods before and after policy implementation, loan spreads for firms participating in cap-and-trade programs are a function of the costs of compliance, the specific features of the permits markets, and the firms’ strategic actions. Our empirical analysis exploits the dichotomy created by phase III of the EU Emission Trading System, designed to increase and pass the cost of CO2 emissions to the polluters. In contrast with possible program intentions, but in line with our theoretical predictions, we find that --starting in 2013-- loan spreads fall by almost 25%. We show that this decrease is almost entirely driven by the low permits price in that period and the firms’ proactiveness to store permits. This dynamic partly undermines the envisioned reductions in CO2 emissions
Verlag:
European Central Bank, Frankfurt am Main, Germany
We study the effect of changes in firms' ESG ratings on the cost of debt of U.S. firms using a methodology change of an ESG rating provider. We find that loan spreads of downgraded ESG-rated firms in the secondary corporate loan market increase by...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 534
Fernleihe:
keine Fernleihe
We study the effect of changes in firms' ESG ratings on the cost of debt of U.S. firms using a methodology change of an ESG rating provider. We find that loan spreads of downgraded ESG-rated firms in the secondary corporate loan market increase by about 10% compared to non-downgraded ESG-rated firms after the methodology change. The effect of ESG rating downgrades is not driven by the increase in the fundamental default risk of firms but rather by the premium charged by investors above the spread for default risk. The effect is stronger for firms that are more financially constrained, firms that are more exposed to ESG and, particularly, climate risk concerns as well as firms that are more held by climate-concerned lenders. We show that also loan spreads of private (unrated) firms in industries affected by ESG rating downgrades increase after the methodology change.
