Climate Change News Risk and Corporate Bond Returns

We examine whether climate change news risk is priced in corporate bonds. We estimate bond covariance with a climate change news index and find that bonds with a higher climate change news beta earn lower future returns, consistent with the asset pricing implications of demand for bonds with high potential to hedge against climate risk. Moreover, when investors are concerned about climate risk, they are willing to pay higher prices for bonds issued by firms with better environmental performance. Our findings suggest that corporate policies aimed at improving environmental performance pay off when the market is concerned about climate change risk.

Automated summary

The study has shown that climate change news risk is already priced in corporate bonds, with bonds having higher climate change news risk beta earning lower future returns. When market concerns about climate risk, investors are willing to pay higher prices for bonds issued by firms with better environmental performance.