Pricing carbon risk: Investor preferences or risk mitigation?

Stefanie Kleimeier*, Michael Viehs

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Do banks charge an environmental premium when lending to publicly listed firms? Using a unique and comprehensive database on carbon emissions, we find that higher carbon emissions are associated with higher loan spreads. This effect exists for loans arranged by all lenders suggesting that spread premia are driven by environmental risks rather than investor preferences. Consistent with ex-post risk, companies without appropriate board-level responsibility pay higher spreads. While countries might introduce effective legislation to mitigate the effects of climate change, our results indicate that there is scope for a market-based solution to complement explicit environmental regulation.
Original languageEnglish
Article number109936
Number of pages4
JournalEconomics Letters
Publication statusPublished - Aug 2021

JEL classifications

  • g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
  • g32 - "Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill"
  • q51 - Valuation of Environmental Effects
  • q54 - "Climate; Natural Disasters; Global Warming"


  • Carbon emissions
  • Cost of debt
  • Bank loans
  • COST


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