Carbon performance and CDS spreads: Unveiling the role of governance mechanisms in shaping dynamic distress risk

Key Points

• Governance mechanisms significantly influence distress risk related to carbon performance, leading to altered CDS spreads.
• A notable 25% increase in CDS spreads corresponds with poor governance practices affecting carbon performance.
• Observational analysis across various sectors reveals a complex interaction of governance and CDS spreads.
• Findings suggest enhanced governance could mitigate distress risk associated with carbon performance.