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ESG Default Risk Mitigation Effect: A Time-Sectorial Analysis

In: New Challenges for the Banking Industry

Author

Listed:
  • Egidio Palmieri

    (University of Udine)

  • Enrico Fioravante Geretto

    (University of Udine)

  • Maurizio Polato

    (University of Udine)

Abstract

The integration of environmental, social, and governance (ESG) issues into risk-taking policies and firms’ strategic planning has become a topic of interest for banks, managers, researchers, and policymakers. We used a difference-in-difference econometric regression on a dataset of 1991 European listed companies to reply to the following research questions: (RQ1) Does each ESG pillar score impact the same magnitude firms’ probability of default on longer time horizons?; (RQ2) Does the ESG risk mitigation effect changes in the function of the sector firms belong to?. The first contribution confirms the existence of the risk mitigation effect, even for short-medium term probabilities of default. Additionally, we reveal that environmental score produces a remarkable impact on short-medium term default probabilities, while governance score improvements are consistent in the medium-long run. Conclusively, we quantify the sectorial impact on ESG risk mitigation effect for a subset of ten sectors.

Suggested Citation

  • Egidio Palmieri & Enrico Fioravante Geretto & Maurizio Polato, 2023. "ESG Default Risk Mitigation Effect: A Time-Sectorial Analysis," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Santiago Carbó-Valverde & Pedro J. Cuadros-Solas (ed.), New Challenges for the Banking Industry, chapter 0, pages 79-98, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-32931-9_4
    DOI: 10.1007/978-3-031-32931-9_4
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