Carbon emission disclosure and carbon premium -- evidence from the Chinese bond market

Carbon emissions play a crucial role in the quantitative assessment of ESG sustainability disclosure. Existing literature has extensively explored the relationship between carbon emissions and firm value. In this study, we analyze data on bond issuances from Chinese listed companies to investigate the impact of carbon emission disclosure on bond credit spreads. Our findings indicate that carbon emission disclosure has a negative relationship with bond credit spreads. Specifically, we demonstrate that disclosing carbon emissions provides new information to the market, influencing credit spreads. The effect of this disclosure on bond credit spreads is particularly significant for firms with higher earnings management, those located in areas with stricter environmental regulations, firms operating in low-carbon industries, and bonds with covenants. Additionally, we assess the methods of carbon emission disclosure and find that quantitative approaches are more beneficial than qualitative ones. Finally, we confirm that the disclosure of other pollutants also contributes to a reduction in credit spreads. Overall, our results highlight the existence of a carbon premium in the bond market, indicating that information related to carbon emissions is already partially reflected in bond pricing.