Aug 2026· Communications of International Proceedings· 0 citations
TL;DR
A weak and unstable relationship between ESG measures and HGK credit ratings is found, and ESG ratings in this context appear to reflect firm size, sector, and reporting capacity more than a strong standalone signal of credit risk.
Abstract
This study investigates whether ESG ratings provide useful information for credit risk assessment in an emerging EU member-state context, where sustainability reporting is rapidly expanding but still institutionally developing. The motivation for the study arises from the increasing regulatory and financial relevance of ESG disclosure in the European Union and from the practical need to understand whether ESG indicators can support creditworthiness evaluation. Although prior research often links stronger ESG performance with lower credit risk, less is known about whether this relationship is observable in smaller and less mature markets, particularly during the early phase of adjustment to EU sustainability reporting requirements. To address this gap, the paper analyses firm-level data from the Croatian Chamber of Economy for 2024–2025. ESG is examined both as an aggregate score and through its Environmental, Social, and Governance components, while credit risk is measured using HGK creditworthiness indicators. The methodology combines descriptive and stratified analysis, pooled and within-firm econometric models, ordered-response and transition analyses, and random forest prediction to assess out-of-sample performance. The findings indicate a weak and unstable relationship between ESG measures and HGK credit ratings. Changes in ESG scores do not systematically translate into changes in credit ratings, and ESG variables add only modest predictive value. Overall, ESG ratings in this context appear to reflect firm size, sector, and reporting capacity more than a strong standalone signal of credit risk.
The dissertation is an investigation on whether or not increased ESG (Environmental, Social and Governance) scores will be correlated with reduced default risk of corporate bonds in developed economies. As the market of sustainable finance grows fast, and regulatory attention to ESG disclosure rises sharply, the correlation between ESG performance and credit risk is one of the most important issues to investors and policymakers. The study is on the case of corporate bonds in the United States, the United Kingdom, the Eurozone and Japan between 2018 and 2025. The quantitative methodology was chosen in terms of primary data analysis. MSCI and Bloomberg provided ESG ratings on a sample of 1,250 investment grade and highyield corporate bonds. Credit spreads and credit probability of default (PD) were used to measure default risk. The data sets were analysed with Pearson correlation, Ordinary Least Squares (OLS) regression and logistic regression to determine the predictive ability of the overall ESG scores and individual E, S and G pillars. The findings indicate that there is a statistically significant negative correlation between the ESG scores and the default risk. There were reduced credit spreads and reduced risk of default in higher ESG-rated bonds and the ESG scores accounted about 14. 2% of credit risk variation (pooled R 2 = 0.142). The environmental pillar presented the greatest predictive influence especially in Eurozone and Japan. This paper concludes that ESG scoring possesses moderate and significant predictive quality of lower default risk in developed markets of corporate bonds. Such results suggest the inclusion of ESG factors in the credit risk assessment and is applicable in practice to sustainable sustainable fixed-income portfolio construction and regulation.
Evidence linking environmental, social, and governance (ESG) performance to financial reporting credibility comes overwhelmingly from developed and large emerging markets, and little of it addresses accrual-based accounting information quality (AIQ) in the Philippines, where sustainability reporting is mandated on a comply-or-explain basis and independent assurance remains uncommon. This study examined the relationship between ESG ratings and the AIQ of Philippine publicly listed companies. A descriptive-correlational design used secondary data from London Stock Exchange Group (LSEG) ESG ratings and audited financial statements filed with the Philippine Stock Exchange for fiscal year 2023. Descriptive analysis covered 40 firms across the consumer, financial, holding, industrial, and property sectors; the regression was estimated on the 31 firms remaining after nine influential observations were removed. ESG performance was described at both overall-score and pillar levels; the overall score served as the regression predictor. AIQ was estimated using the Modified Jones Model, in which higher absolute discretionary accruals denote lower quality. Descriptive results showed satisfactory overall ESG performance (M = 54.60, SD = 12.20), the Social pillar the most consistent and Governance the most variable. Multiple regression indicated that industry, years of operation, market capitalization, and ESG rating jointly explained a significant share of variance in discretionary accruals, R² = .56, adjusted R² = .42, F(7, 23) = 4.10, p = .005, f² = 1.25. ESG rating was a significant positive predictor of discretionary accruals (B = 0.001, p = .040), indicating lower AIQ among more highly rated firms; industry classification was the strongest determinant, while years of operation and market capitalization were not significant. The findings suggest that where sustainability disclosure is mandated but lightly verified, ESG ratings should not be treated as a proxy for accounting credibility, and that sector-specific reporting discipline exerts the stronger influence.
Nyssa Cassandra Agtarap, Jan Patrick Bito-on, Trixia May Cañedo et al.· Journal of Interdisciplinary...· 0 citations
Environmental, Social and Governance (ESG) ratings are increasingly used to guide investment decisions and sustainability disclosure, yet their ability to reflect realised environmental outcomes remains uncertain. This study examines whether ESG ratings capture market valuation and reported environmental performance among Malaysian listed firms. Based on 625 ESG-rated firms from an initial screen of 1,124 Malaysian listed companies, the analysis estimates ordinary least squares regressions with HC3 heteroskedasticity-robust standard errors, controlling for firm size, pretax return on assets and financial leverage. The valuation model uses 551 observations, while the CO₂ emissions model uses 523 observations because of environmental disclosure gaps. The results show that composite ESG scores are positively associated with price-to-book ratios (β = 0.033, p < .001), suggesting that Malaysian equity investors treat ESG ratings as value-relevant market signals. ESG scores are also strongly associated with environmental sub-scores, indicating internal consistency within the same commercial rating system. However, the relationship between ESG scores and logged CO₂ emissions is economically small and weakly negative after controls (β = −0.014, p = .032), while firm size remains the dominant predictor of reported emissions. These findings show that ESG ratings in Malaysia capture valuation relevance and disclosure visibility more clearly than realised environmental performance. The study contributes by distinguishing ESG ratings as market signals, internally consistent commercial scores and imperfect proxies for environmental outcomes. It highlights the need for more comparable, transparent and assured climate-related reporting before ESG ratings can be treated as reliable indicators of environmental performance.
Juan Zhang, Yihuan Lin· Malaysian Journal of Busines...· 0 citations
This study is motivated by the growing importance of Environmental, Social, and Governance (ESG) in global investment decision-making and the increasing inconsistency among ESG rating agencies. This study aims to examine the impact of ESG rating divergence on market dynamics and corporate performance while identifying the key factors underlying such discrepancies. This study employs a Systematic Literature Review (SLR) method using the PRISMA framework to ensure transparency and reproducibility in the study selection process. Data were collected from major academic databases and analyzed qualitatively to identify patterns, trends, and inconsistencies across empirical findings. The findings indicate that ESG rating divergence increases information asymmetry, leading to higher stock price volatility and reduced market liquidity. Furthermore, divergence weakens investor confidence and diminishes the reliability of ESG signals in explaining corporate financial performance. The impact on corporate outcomes is reflected in increased financing constraints, which reduce firm productivity and value, although divergence may generate a risk premium under certain conditions. This study concludes that ESG rating divergence has significant implications for market efficiency and corporate performance, highlighting the need for improved transparency and standardization in ESG assessment practices.
A. Gau, Rio Dhani Laksana· The International Conference...· 0 citations
This study examines the relationship between environmental, social, and governance (ESG) performance and bank credit risk among publicly listed U.S. banks over the period 2016–2025. It distinguishes between forward-looking and realized credit risk by using the loan loss provision ratio (LLPR) as the primary measure of expected credit risk and the non-performing loan ratio (NPLR) as a robustness measure. Using fixed-effects and dynamic System Generalized Method of Moments (System GMM) estimations, the results show that stronger ESG performance is associated with lower forward-looking expected credit risk. The ESG pillar analysis indicates that the social dimension exerts the strongest risk-reducing effect, followed by governance and environmental performance. In addition, economic policy uncertainty weakens the beneficial effect of ESG on bank credit risk. By contrast, ESG performance is not significantly associated with realized credit deterioration measured using NPLR, suggesting that ESG primarily influences banks’ expectations of future credit losses rather than realized loan performance. Overall, the findings demonstrate that the impact of ESG on bank credit risk depends on both the measurement of credit risk and the surrounding macroeconomic environment.
Mohammad Al-Dwiry, Weaam Amira· Journal of Risk and Financia...· 0 citations
Background: Increasing global shocks threaten corporate financial stability, particularly in emerging markets. This study measures uncertainty using the World Uncertainty Index (WUI), World Pandemic Uncertainty Index (WPUI), Climate Policy Uncertainty (CPU), and Economic Policy Uncertainty (EPU) across current, lag-1, and lag-2 periods. Bankruptcy risk is proxied by the Altman Z-Score and Distance-to-Default (DTD).
Objective: This study examines the effect of global uncertainty on the bankruptcy risk of companies listed on the Indonesia Stock Exchange.
Methods: Secondary data from 2000–2024 were analyzed using fixed-effects panel regression in STATA 17. Purposive sampling produced 9,377 firm-year observations for the Z-Score model and 9,156 for the DTD model.
Results: EPU and CPU significantly reduced Z-Scores across all time specifications, indicating increased financial distress through an aggravation effect. WPUI had a significant negative effect at lag 2, while WUI was insignificant. In the DTD model, only current-period EPU had a significant negative effect. State-owned enterprises and the Commodity and Cyclical sectors were most vulnerable, whereas the Defensive sector was most resilient.
Conclusion: Global uncertainty affects bankruptcy risk heterogeneously. The findings support sector-specific risk mitigation, strategic portfolio allocation, and stronger corporate financial resilience.
B. Gautama, Rosmita Rasyid· Inkubis Jurnal Ekonomi dan B...· 0 citations