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Pricing Climate Transition Risk: An Analysis of the Global Syndicated Loans Market

Aftab, Samia LU and Stoicescu, Vlad (2024) NEKN02 20241
Department of Economics
Abstract
Climate transition risk pricing in capital markets has emerged as a critical area of research. Using a comprehensive dataset of syndicated loans spanning the years 2010 to 2020, combined with greenhouse gas emission and financial data for borrowers and lenders from three different sources, we conduct an extensive cross-sectional regression analysis to assess how greenhouse gas emissions are priced into the syndicated
loan market. Our findings reveal that while carbon risk is consistently priced into loan spreads, its economic impact is limited. Lenders predominantly focus on borrowers' Scope 1 emissions intensity and the levels of Scope 1 and 2 emissions, with Lenders' Scope 3 emissions showing no significant effect on loan pricing.... (More)
Climate transition risk pricing in capital markets has emerged as a critical area of research. Using a comprehensive dataset of syndicated loans spanning the years 2010 to 2020, combined with greenhouse gas emission and financial data for borrowers and lenders from three different sources, we conduct an extensive cross-sectional regression analysis to assess how greenhouse gas emissions are priced into the syndicated
loan market. Our findings reveal that while carbon risk is consistently priced into loan spreads, its economic impact is limited. Lenders predominantly focus on borrowers' Scope 1 emissions intensity and the levels of Scope 1 and 2 emissions, with Lenders' Scope 3 emissions showing no significant effect on loan pricing. Additionally, we observe that the Paris Agreement has exerted a negative, significant, but economically modest influence on loan spreads for high-emitting firms. Furthermore, our analysis indicates that emissions do not have predictive power in determining the likelihood of a loan being sold in the secondary market. These results suggest that while there is recognition of carbon risk in the primary syndicated loan market, its overall influence on loan pricing and secondary market activities remains limited. (Less)
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author
Aftab, Samia LU and Stoicescu, Vlad
supervisor
organization
course
NEKN02 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Syndicated loans pricing, Transition risk, Carbon risk
language
English
id
9160302
date added to LUP
2024-08-12 15:54:56
date last changed
2024-08-12 15:54:56
@misc{9160302,
  abstract     = {{Climate transition risk pricing in capital markets has emerged as a critical area of research. Using a comprehensive dataset of syndicated loans spanning the years 2010 to 2020, combined with greenhouse gas emission and financial data for borrowers and lenders from three different sources, we conduct an extensive cross-sectional regression analysis to assess how greenhouse gas emissions are priced into the syndicated
loan market. Our findings reveal that while carbon risk is consistently priced into loan spreads, its economic impact is limited. Lenders predominantly focus on borrowers' Scope 1 emissions intensity and the levels of Scope 1 and 2 emissions, with Lenders' Scope 3 emissions showing no significant effect on loan pricing. Additionally, we observe that the Paris Agreement has exerted a negative, significant, but economically modest influence on loan spreads for high-emitting firms. Furthermore, our analysis indicates that emissions do not have predictive power in determining the likelihood of a loan being sold in the secondary market. These results suggest that while there is recognition of carbon risk in the primary syndicated loan market, its overall influence on loan pricing and secondary market activities remains limited.}},
  author       = {{Aftab, Samia and Stoicescu, Vlad}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Pricing Climate Transition Risk: An Analysis of the Global Syndicated Loans Market}},
  year         = {{2024}},
}