{"title":"Be good to be wise: Environmental, Social, and Governance awareness as a potential credit risk mitigation factor","authors":"Marina Brogi, Valentina Lagasio, Pasqualina Porretta","doi":"10.1111/jifm.12156","DOIUrl":null,"url":null,"abstract":"<p>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 <i>Z</i>-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.</p>","PeriodicalId":46659,"journal":{"name":"Journal of International Financial Management & Accounting","volume":null,"pages":null},"PeriodicalIF":9.4000,"publicationDate":"2022-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jifm.12156","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Financial Management & Accounting","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/jifm.12156","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
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.
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.