The ECB produces a Working Paper on the topic of the Low carbon Transition, Climate Commitments and the impacts on Credit Risk.

This is a rather technical essay, focusing on the following topic: “whether and how two key measures of firm-level credit risk – credit ratings issued by rating agencies and the market-implied distance-to-default – relate to firms’ climate-related transition risk”.

The ECB uses data covering approximately 560 European and US listed non-financial firms, observed over the period 2010 – 2019.

A major conclusion of their (statistical and historical) analysis is that high emissions tend to be associated with higher credit risk. But disclosing emissions and setting a forward-looking target to cut emissions are both associated with lower credit risk.

Their research also finds that after the Paris Agreement, firms most exposed to climate transition risk saw their credit ratings deteriorate whereas other comparable firms did not, with the effect larger for European firms than for US ones.


ECB Working Paper: