Funding the Fittest? Pricing Climate Transition Risk in the Corporate Bond Market

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Speaker: Yasmine van der Straten, Nova School of Business and Economics

We examine whether climate transition risk affects the cost of capital and how investors value green innovation. Using confidential bond-level holdings and global firm data, we find evidence of a positive transition risk premium. This premium is lower for emission-intensive firms that actively engage in green innovation, suggesting that investors recognise and reward efforts to mitigate climate change. While investors divest from emission intensive firms, our findings suggest that those with greater risk-bearing capacity play a crucial role in the green transition by channelling capital toward emission-intensive firms that actively invest in green innovation. European institutional investors, particularly mutual funds, demonstrate a stronger demand for bonds issued by these firms, reducing their cost of capital relative to other emission intensive firms.

Speaker bio

Yasmine van der Straten is an Assistant Professor in Finance at Nova School of Business and Economics. Her research interests are in macro-finance, climate finance and household finance. Yasmine studies how market incentives and financing frictions shape households’ response to climate change, through adaptation and mitigation, along with the resulting distributional effects. She also examines how investors respond to firms’ efforts to mitigate climate transition risks and the associated pricing implications. Yasmine obtained a PhD in Finance from the University of Amsterdam and Tinbergen Institute. 

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