From climate chat to climate shock: non‐linear impacts of transition risk in energy CDS markets

Campiglio, Emanuele, De Angelis, Luca, Neri, Paolo and Scalisi, Ginevra (2025) From climate chat to climate shock: non‐linear impacts of transition risk in energy CDS markets. Environmetrics, 36 (3). ISSN 1180-4009

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Abstract

It is still unclear to what extent transition risks are being internalized by financial investors. In this paper, we provide a novel investigation of the impact of media‐based measures of transition risks on the credit risk of energy companies, as measured by their credit default swaps (CDS) indices. We include both European and North American markets in the 2010–2020 period. Using linear and non‐linear local projections, we find that a transition risk shock affects CDS indices only when combined with tangible physical climate‐related impacts. We also find evidence of non‐linear cross‐border effects, with North American energy companies particularly affected by European dynamics. We suggest that the public reaction in the wake of severe climate‐related disasters, which might push policymakers to adopt more decisive climate action, contributes to making the transition‐related debate salient in the eyes of credit market actors.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
JEL classification:	C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Date Deposited:	03 Apr 2025 09:15
Last Modified:	14 Apr 2025 16:03
URI:	http://eprints.lse.ac.uk/id/eprint/127807

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