Transmission Effect from Insurers’ Climate Risk Disclosures on Their Corporate Bond Investees’ Environmental Friendliness

Abstract

<p>We investigate how insurers’ mandatory climate risk disclosure affects their corporate bond investees’ environmental friendliness. We employ the U.S. insurance industry’s adoption of the Climate Risk Disclosure Survey (CRDS) and a difference-in-differences research design. We find that adoption reduces investees' carbon emission intensity if insurers affected by the CRDS also own a significant amount of the investees’ bonds. This outcome is consistent with investors’ mandated climate risk disclosure having a positive insurer-to-investee transmission effect on investees’ environmental performance. The reduction in carbon emission intensity is more pronounced when the insurers and/or their investees experience more climate-related public pressure to be more climate friendly, when the insurers are likely to more closely monitor their investees, when the investees are more dependent on financing from the insurers, and when the insurers face less underwriting competition.<br></p>