Pricing Climate Risk into Corporate Bonds: A Study of Greenium, Carbon Premium, and Transition Risk in Fixed-Income Markets by Gurpreet Singh :: SSRN

This study explores how climate-related financial risks—specifically the Greenium, Carbon Premium, and Transition Risk—are reflected in corporate bond pricing. Drawing from a blend of empirical analysis and theory, we examine how environmental risks influence credit spreads and cost of capital. Using real data from 75 U.S. corporate bonds, a regression model demonstrates that ESG risk, green bond certification, and transition exposure all significantly affect bond yields. Green bonds enjoy narrower spreads (Greenium), while carbon-intensive firms face higher borrowing costs (Carbon Premium). Firms exposed to policy-driven climate transitions are also penalized with higher spreads (Transition Risk). Our findings offer insight into ESG integration, climate-aware investing, and risk-adjusted fixed-income valuation.