Credit Default Swaps and Corporate Environmental Impacts in Japan

In contrast to the time when (Friedman, 1970) stated that a corporate executive, who is an agent of the corporation owner, serves the interests of their principal, firms are now responsible for corporate greenhouse gas (GHG) emissions. The investor expects firms to disclose not only GHG emissions, but also the degree of climate-related risk that might impact their business financially. Climate-related risk includes transition and physical risks, which firms find difficult to measure and incorporate into their financial statements. Simultaneously, the market focuses on corporate performance in environmental challenges. For example, firms attempt to curb carbon emissions, and the market then tries to incorporate their performance into the evaluation of the firm.