The impact of environmental performance on credit ratings

Abstract: This paper aims to investigate the relationship between environmental performance and credit ratings on the Asian, European, and North American market in the context of the ESG framework over a period of ten years through 2013-2022. Through the usage of primarily POLS and POLS with a fixed year effect model, 242 firms across the different regions are studied on an aggregate level, in terms of being consumer oriented and manufacturing intensive as well as on a regional level in order to explore said relationship. The findings speak in favor of better environmental performance leading to higher credit ratings, however what precise components of the environmental performance lead to this effect is shown to be circumstantial and vary across industries and regions. The largest effects could be found for the manufacturing intensive industries, as well as for the North American region.