Be good to be wise: Environmental, Social, and Governance awareness as a potential credit risk mitigation factor

IF 9.4 3区 管理学 Q1 BUSINESS, FINANCE Journal of International Financial Management & Accounting Pub Date : 2022-01-18 DOI:10.1111/jifm.12156
Marina Brogi, Valentina Lagasio, Pasqualina Porretta
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Abstract

Integrating Environmental, Social, and Governance (ESG) factors into credit risk assessment is the new frontier for credit risk management as regulators and investors increasingly require banks to channel loans to “sustainable” borrowers and ultimately foster sustainable growth. Our findings show that higher ESG awareness is strongly associated with better creditworthiness (proxied by the Altman Z-score). We apply a two-step methodology to 3331 companies from various industries and geographies in the 2000–2016 period which reveals that high ESG awareness scores are strongly and very significantly associated with a reduction in firm credit risk. We check the robustness by using the Probability of Default as a dependent variable and an instrumental variable constructed with a factor analysis. Our results support the appropriateness of the introduction of ESG awareness parameters in the creditworthiness assessment of borrowers.

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明智行事:环境、社会和治理意识是潜在的信贷风险缓解因素
随着监管机构和投资者越来越多地要求银行向“可持续”借款人提供贷款,并最终促进可持续增长,将环境、社会和治理(ESG)因素纳入信贷风险评估是信贷风险管理的新前沿。我们的研究结果表明,更高的ESG意识与更好的信用度密切相关(以Altman Z-score为代表)。在2000-2016年期间,我们对来自不同行业和地区的3331家公司应用了两步方法,结果表明,高ESG意识分数与公司信用风险的降低密切相关。我们使用违约概率作为因变量和通过因子分析构建的工具变量来检查稳健性。我们的研究结果支持在借款人的信用评估中引入ESG意识参数的适当性。
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来源期刊
CiteScore
9.10
自引率
2.00%
发文量
23
期刊介绍: The Journal of International Financial Management & Accounting publishes original research dealing with international aspects of financial management and reporting, banking and financial services, auditing and taxation. Providing a forum for the interaction of ideas from both academics and practitioners, the JIFMA keeps you up-to-date with new developments and emerging trends.
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