Credit Ratings in the Age of Environmental, Social, and Governance (ESG)
63 Pages Posted: 18 May 2020 Last revised: 22 Oct 2021
Date Written: April 18, 2020
Abstract
I present the first study that systematically examines the implications of ESG adoption by credit rating agencies. I find that, with a recent move by Standard & Poor’s and Moody’s towards incorporating ESG issues into their analysis, credit ratings positively reflect firms with lower carbon emissions and better social ratings. Despite the recognition of such issues by credit rating agencies, I discover no consistent evidence of improvement in the informational quality of credit ratings. This is concerning as the stated purpose of ESG adoption is to enhance their assessment of credit risk.
Keywords: credit rating agency, ESG, corporate social responsibility, corporate governance
JEL Classification: G24, G34
Suggested Citation: Suggested Citation