Credit and climate risk in green debt markets: corporate bonds and energy efficient securitisation

Dragotto, M. (2025) Credit and climate risk in green debt markets: corporate bonds and energy efficient securitisation. PhD thesis, University of Reading. doi: 10.48683/1926.00127769

Abstract/Summary

This thesis explores how environmental information affects credit risk and pricing in fixed-income markets. It focuses on three areas: corporate green bonds, Green RMBS, and mortgage loans with energy performance data. The aim is to understand whether markets respond to environmental signals, and under what conditions these signals matter most. The first empirical investigation examines corporate green bonds in the secondary market. The analysis shows that the negative yield differential of green over conventional bonds is dynamic and reacts to climate policy events. Certified green bonds in environmentally material industries enjoy a larger premium, while non-certified issues often face scepticism over greenwashing. Certified bonds also maintain narrower spreads during natural disasters and heightened media coverage of climate change. The second empirical investigation studies Green Residential Mortgage-Backed Securities (RMBS) deals. Using detailed loan and tranche data, it finds that deals labelled as green are backed by loans with lower delinquency risk and are more likely to produce investment-grade tranches. Moreover, stress simulations confirm that green-labelled structures absorb smaller losses under adverse conditions. The third empirical investigation shifts focus to property-level energy efficiency. It harmonises Energy Performance Certificate (EPC) data from multiple countries to test whether buildings’ energy performance predicts loan-level delinquency. The results show that less efficient homes are associated with higher arrears and default risk, especially for lower-income borrowers and during periods of high energy inflation. These findings underline the importance of energy efficiency for loan-level credit risk assessment and its relevance to EU goals on the green transition and energy security. Overall, the thesis shows that environmental features can enhance markets’ assessment of risk, with three key insights: environmental factors are financially relevant, credibility is critical, and effects are context-dependent.

Item Type	Thesis (PhD)
URI	https://centaur.reading.ac.uk/id/eprint/127769
Identification Number/DOI	10.48683/1926.00127769
Divisions	Henley Business School
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