Europe's top carbon polluters face rising bond interest rates, Dutch Central Bank report says

According to a report by the Dutch Central Bank, Europe's biggest carbon polluters are paying increasingly higher interest rates on their bonds.

The report added that investors are asking for an interest rate premium to compensate for the risks that emission-intensive companies are exposed to. This 'risk premium' is slightly lower for European carbon-intensive companies that allocate more resources to sustainable innovations.

According to the central bank, companies that are high polluters but invest in emissions-reducing technologies receive more favorable conditions in the bond market than those that do not.

The total nominal value of outstanding debt is set at €1.6 trillion ($1.7 trillion).

In two recent studies, DNB examined the extent to which investors in corporate bonds consider business risks related to the transition to a climate-neutral economy in addition to financial risks.

DNB said, "The fact that financial markets price in transition risks helps businesses achieve climate goals in an economically efficient way. It provides a financial incentive for companies to become more sustainable and reduce their greenhouse gas emissions. Companies that do not take climate change into account, or take it too lightly, ultimately slow down the energy transition."

Iberdrola places $525 million in 10-year US green bonds, capitalizing on strong market demand

The EU's Green Deal, an ambitious plan to achieve net zero emissions by 2050, was approved in 2020. It mandates the transformation of every industry, focusing on carbon-intensive sectors like steel and cement, and emphasizes the protection of biodiversity, natural habitats, and oceans.

According to DNB, the Green Deal has increased risk premiums for both short—and long-term bonds.

Although the pandemic and other factors may have influenced pricing, the evidence suggests that companies with lower emissions can finance their operations at reduced costs.