ESG in Credit Ratings and the Impact on Financial Markets

28 Pages Posted: 20 May 2020

See all articles by Florian Kiesel

Florian Kiesel

Grenoble Ecole de Management

Felix Lücke

affiliation not provided to SSRN

Date Written: August 2019


This study examines environment, social, governance (ESG) consideration in rating reports published by credit rating agencies. 3,719 Moody's credit rating reports between 2004 and 2015 are examined and the ESG consideration is analyzed using a latent dirichlet allocation (LDA) approach. We further analyze the stock returns and credit default swap (CDS) spread changes to check whether ESG consideration has an effect on the capital market reactions. We find a small but present consideration of ESG in rating decisions. Within ESG, corporate governance plays the most important role. Moreover, the results reveal that ESG consideration is a significant determinant in the stock return and CDS spread around the rating announcement. We find that all ESG criteria are important for equity and debt investors.

Keywords: credit default swap, credit ratings, Environment Social Governance (ESG), Latent Dirichlet Allocation (LDA), stock market

JEL Classification: G14

Suggested Citation

Kiesel, Florian and Lücke, Felix, ESG in Credit Ratings and the Impact on Financial Markets (August 2019). Financial Markets, Institutions & Instruments, Vol. 28, Issue 3, pp. 263-290, 2019, Available at SSRN: or

Florian Kiesel (Contact Author)

Grenoble Ecole de Management ( email )

12 Rue Pierre Semard
Grenoble, Cedex 01 38000

Felix Lücke

affiliation not provided to SSRN

No Address Available

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