ESG, Material Credit Events, and Credit Risk

15 Pages Posted: 27 May 2020

See all articles by Witold J. Henisz

Witold J. Henisz

affiliation not provided to SSRN

James McGlinch

University of Pennsylvania - The Wharton School

Date Written: Spring 2019

Abstract

A growing body of research has extended the analysis of the materiality of ESG criteria from the perspective of equity investors to creditors. Past research and analysis have demonstrated the link between better management of ESG criteria and better management of risk overall. Despite this growing consensus and consistent evidence that ESG performance is correlated with credit risk, no empirical evidence has yet linked ESG performance to cost or expense variances or revenue shortfalls that could explain these correlations. The authors attempt to address this lack of mechanism‐based empirical evidence by citing and then building on a number of well‐publicized cases with analysis of two major ESG issues—indigenous land claims and biodiversity—as they affect the global project finance and agriculture sectors. Broadening these single‐sector results, the authors use a novel dataset providing systematic coding of material events reported in the media across a variety of empirical settings to produce the first large‐sample empirical evidence of the mechanisms linking ESG performance to credit risk.

Suggested Citation

Henisz, Witold J. and McGlinch, James, ESG, Material Credit Events, and Credit Risk (Spring 2019). Journal of Applied Corporate Finance, Vol. 31, Issue 2, pp. 105-117, 2019, Available at SSRN: https://ssrn.com/abstract=3604421 or http://dx.doi.org/10.1111/jacf.12352

Witold J. Henisz (Contact Author)

affiliation not provided to SSRN

No Address Available

James McGlinch

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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