Carbon default swap – disentangling the exposure to carbon risk through CDS

Working paper by Alexander Blasberg, Rüdiger Kiesel, Luca Taschini on 27 Jan 2023

In this paper the authors use Credit Default Swap (CDS) spreads to construct a forward-looking, market-implied carbon risk factor and study how, where and when carbon risk affects firms’ creditworthiness by examining whether firms’ exposure to carbon risk is reflected in the market prices of their CDS contracts.