We examine the effect of voluntary climate risk disclosure on Credit Default Swap (CDS) premiums. We develop a structural model, in which climate-related disclosures serve as an information source reducing climate change uncertainty. The model predicts a negative relation between the informativeness of climate risk disclosure and the CDS premium, and asymmetric effects of positive and negative disclosure tone on the CDS premium. Using climate risk measures quantified from earnings call transcripts, we provide evidence supporting these predictions with causal inference. Our study suggests that climate risk is priced in the CDS market, where investors pay attention to climate risk disclosures.

This study examines the effects of environmental, social, and governance (ESG) performance on bond return volatility. After controlling for bond characteristics and firm fundamentals, we find a robust positive relationship between ESG performance and bond return volatility. The empirical results demonstrate that the impact on bond return volatility is primarily driven by ESG strengths rather than concerns. The results are robust to alternative measures, sample periods, and endogeneity controls. Furthermore, the effect of ESG performance is more pronounced for firms with opportunistic managers and poor information environments.