The influence of sustainability in credit assessment for the banking sector: a mediation analysis
In recent years, the main rating agencies (Standard & Poor's, Moody’s and Fitch) have started to incorporate environmental, social and governance (ESG) factors into their methodologies for measuring an issuer's creditworthiness, prompting questions on if and how investments to comply with ESG standards could influence the final rating of a company. A growing number of studies have investigated the transmission channels from ESG factors, financial performances and credit rating. With the aim of increase our understanding about these issues, we use, for the banking sector, a mediation analysis to assess whether the ESG ratings could play a role on the creditworthiness of a company and if sustainability scores could act as mediators between balance-sheet ratios and credit ratings. Main results show that Environmental and Social score positively influence the Credit Rating while, possibly due to an increasing regulation, Governance does not seem to play a role. Environment and Social aspects are negatively influenced by Net Interest Margin, leading to a possible negative indirect effect of this balance sheet indicator on Credit Rating. Mediation analysis shows however that such indirect effect is negligeable.
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Keywords: ESG, credit rating
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