Green Numbers in Grey Areas: A study on what methods credit analysts use to integrate incomplete ESG data in the credit rating process

Abstract: In response to the urgent need to address global warming, this study investigates the efforts of two credit rating agencies (CRAs), Aries and Orion, to integrate environmental, social, and governance (ESG) factors into their financial analyses amidst challenges posed by inconsistent and unstandardized data. Based on interviews with nine CRA representatives and Knorr Cetina's theory of epistemic cultures, the present study reveals the difficulties faced by the CRAs with directly linking ESG factors to credit ratings. It highlights their use of epistemic strategies, such as negative knowledge, frames of reference, and self-explanation, to navigate this challenge. These strategies are evident in their methodological approaches, calculative practices, and improvement efforts. The study contributes to the literature on ESG integration by detailing how these strategies aid in assimilating ESG considerations, thereby offering new perspectives. Additionally, it explores the prerequisites and potential pitfalls of true ESG integration, along with the broader implications of these findings. This leads to a discussion on the allocation of responsibilities in directing capital towards sustainable borrowers.