Developing a Sustainability Credit Score System

The Linkage between ESG Performance and Credit Ratings: A Firm-Level Perspective Analysis

“…Academic studies have evolved the debate around the impact of ESG integration by discussing new ways to include ESG commitments within the evaluation process, both investments (Miralles-quiro & Miralles-quiro, 2017) and credit lending practices (Zeidan et al, 2015). As a matter of fact, credit lending practices have been primarily based on credit score systems in which banks predict the following risk components: probability of default, loss given default, exposure at default, and maturity.…”

“…Zeidan et al (2015) have questioned whether the default probability depends also on the future sustainability and the long-term impact on socially responsible initiatives. The literature has been advanced in terms of the construction of sustainability credit scoring; this tool ranks firms in terms of their sustainability commitment, through which the bank can assess a higher quantity of information (Zeidan et al, 2015). The study of Grunert et al (2005) is one of the first works that demonstrates how the combination of financial and non-financial factors leads to more accuracy in the prediction of a default event.…”

“…Despite the increasing interest in this issue, the effect of environmental, social, and governance issues on overall firm risk by jointly considering debt financing still remains an open, entangling debate (Albuquerque, Durnev, & Koskinen, 2014;Lee & Faff, 2009). From a financial perspective, scholars and practitioners call for the need to integrate ESG objectives into credit scoring evaluations and lending policies adopted by financial intermediaries (Attig, El Ghoul, & Guedhami, 2013;Birindelli, Ferretti, Intonti, & Iannuzzi, 2015;Zeidan, Boechat, & Fleury, 2015). As a matter of fact, ESG objectives do not clearly figure in the creditworthiness evaluation of credit lending practices employed by banks yet (Zeidan et al, 2015), even if financial markets and institutions have demonstrated an increasing interest in ESG criteria within investment decision-making processes (Friede et.…”

“…al., 2015). In other words, banks and financial institutions exclusively rely on risk sensitivity parameters, and they are still adopting lending practices by estimating risk against the default of borrowers (Zeidan et al, 2015). This evidence leads us to claim that this estimation does not price the potential value the company may be able to set up with social initiatives among all stakeholders and the community, even if the positive impact of the ESG factor on firm value has already been confirmed (Cellier & Chollet, 2016;Fatemi et al, 2017;Gutsche, Schulz, & Gratwohl, 2017;Lins & Servaes, 2017).…”

Estimation of structural bank units’ territorial distribution in Ukraine

“…О. Вебер (Weber et al, 2008) разом з іншими ав-торами вважають, що сталий розвиток банку можливий лише за умови здатності генерувати майбутні фінансові результати [2]. Р. Зеідан (Zeidan et al, 2015) розглядає ряд факторів сталого розвитку банків і вважає за необхідне включати їх у систему оцінювання банківського ризику [3]. Н. Ісаєва [4], Ж. Довгань [5], А. Сомик [6] стверджують, що банкам необхідно зміцнювати свої конкурентні позиції, оскільки фактори, такі як реструктуризація підрозділів, надання однотипних послуг, зростання рівня конкуренції, експансія банків з іноземним капіталом ведуть до змен-шення їх кількості.…”