Credit Ratings in the Age of Environmental, Social, and Governance (ESG)

Yang, Ruoke; Zheng, Lirong

doi:10.2139/ssrn.3595376

Cited by 3 publications

(2 citation statements)

References 23 publications

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“…This finding lines up with prior research that BRT signatories who espoused concerns for all stakeholders did not necessarily follow through on their proclamations with concrete action (e.g., Bebchuk and Tallarita, 2020;Raghunandan and Rajgopal, 2021a). The non-result related to KLD scores is consistent with prior work that that ESG ratings are noisy (Yang, 2020;Raghunandan and Rajgopal, 2021a).…”

Section: Introductionsupporting

confidence: 87%

Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks

2022

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Section: Introductionsupporting

confidence: 87%

Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks

2022

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“…Not only is the integration in question-it has been strongly suggested that only the 'G' element has ever been integrated properly, and even then, the rate of integration is questionable 33 -but also it has been argued that the integration of ESG has very little impact, if any, on the accuracy of credit ratings. 34 If that is the case, then why would investors want to work with rating agencies and encourage their usage more? There are many answers for that, and we will cover them over the final two chapters.…”

Section: The Credit Rating Agencies and Esgmentioning

confidence: 99%

The Credit Rating Agencies

Cash

2021

Palgrave Studies in Impact Finance

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The credit rating industry has become a central component of the financial architecture over the years. Whilst this has not always been the case for the predominant 'Big Three' credit rating agencies of Standard & Poor's (now S&P Global), Moody's, and Fitch Ratings, there were reasons for this-the important aspect to understand is that their role has been central to the financial architecture for nearly 200 years in various guises. The question for our analysis here is whether that role will be central to the new financial architecture, one theoretically based upon sustainability and forward-thinking finance.The leading credit rating agencies have, since the Financial Crisis, been jostling for supremacy ahead of the predicted 'mainstreamisation' of the concept of sustainable finance and investment. The acquiring of data service companies has been continuing at a rapid pace and shows absolutely no signs of slowing down; at the time of writing, S&P are poised to make the biggest purchase of a company in 2020 globally, reportedly agreeing to spend $44 billion on acquiring HIS Markit. 1 If this acquisition goes through as expected, then it will be further evidence of the concerted approach the credit rating giants are taking.However, what does this approach mean? Does it really put the credit rating industry in the best position to serve the mainstreamisation of sustainable business/finance/investment? Is that even their aim? To find out, there are a number of things we can focus on. The main aspect

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Are environmental, social and government factors incorporated in the credit ratings?

Cioli,

Giannozzi,

Pescatori

et al. 2023

RGC

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Sustainability aspects are assuming a key role both in investment decisions and in credit assessment processes. The aim of this research is to investigate the relationship between environmental, social and governance (ESG) variables and credit rating. We conduct an analysis on a sample of 1191 US-listed companies in 2021. We collect S&P credit ratings on Thomson Refinitiv and we regress ESG variables, and the sub-categories of each pillar E/S/G, against credit rating, along with common firm-specific factors affecting credit risk. The result highlights a direct relationship between ESG performance and credit ratings, confirming previous literature (Apergis et al., 2022; Devalle et al., 2017). Companies with good ESG scores achieve better credit ratings of up to three points. Particularly, good social performance is significantly associated with better credit ratings. However, the empirical analysis shows that the current integration of ESG parameters into credit rating assignment processes is only at an early stage because it is still difficult to quantify the impact of these factors by separating them from economic and financial indicators. This study updates previous research with a larger sample and paves the way for improving and strengthening ESG research on environmental, social and governance performance issues. Managers should promote an effective ESG policy and, in particular, social practices to improve a firm’s creditworthiness, while regulators should unify the ESG evaluation criteria for credit rating agencies.

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Credit Ratings in the Age of Environmental, Social, and Governance (ESG)

Cited by 3 publications

References 23 publications

Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks

Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks

The Credit Rating Agencies

Are environmental, social and government factors incorporated in the credit ratings?

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