Gianfranco Gianfrate, Professor of Finance, EDHEC Business School and Lead Expert on Sustainable Finance and Climate Change, EDHEC-Risk Institute will be speaking on the theme of climate change and credit risk at the 9th ESG Investment Breakfast (Webinar) hosted by Arvella Investments on 27 october, 2020.
During the webinar, Gianfranco Gianfrate will discuss the relation between a firm’s exposure to climate risks, measured as level of CO2 emissions and carbon intensity, and Merton’s distance-to-default, a measure of creditworthiness widely used by rating agencies and investors. He will also address the policy implications and the threat the exposure to climate risks poses to the global financial stability.
On 27 October 2020, the agenda will be as follows:
- 9:00am – 9:30am CET : Presentation
- 9:30am – 9:45am CET : Q&A and Discussion
You can access EDHEC-Risk Institute research paper by Gianfranco Gianfrate "Climate Change and Credit Risk", published in February 2020.
He investigates the relationship between exposure to climate change and firm credit risk. He shows that the distance-to-default, a widely used market-based measure of corporate default risk, is negatively associated with the amount of a firm’s carbon emissions and carbon intensity. Therefore, companies with high carbon footprint are perceived by the market as more likely to default, ceteris paribus. The carbon footprint decreases the distance-to-default following shocks - such as the Paris Agreement - that reveal policymakers’ intention to implement stricter climate policies. Overall, these results indicate that the exposure to climate risks affects the creditworthiness of loans and bonds issued by corporates. Financial regulators and policymakers should consider carefully the impact of climate change risks on the stability of both lending intermediaries and corporate bond markets.