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

Abstract

Environmental, social, and governance (ESG) issues of corporations have been the subject of much interest of late among many of their investors. Increasingly, these issues are being examined with a view towards managing financial risks. This paper studies the implications of this development for the credit ratings business. I find that a recent move by Standard and Poor's and Moody's towards incorporating ESG issues into their credit analysis was perceived by the market to have improved the quality of their ratings. However, despite this new recognition of ESG in the market for credit ratings, news about problems related to ESG appears to generally matter very little for these ratings.

Keywords: credit ratings, corporate social responsibility, governance

JEL Classification: G24, G34