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The Role of ESG on Credit Rating in the Banking Sector: A Mediation Analysis to Disentangle the Direct and Indirect Effects

In: ESG Integration and SRI Strategies in the EU

Author

Listed:
  • Manuela Fasano

    (University of Perugia)

  • Barbara Guardabascio

    (University of Perugia)

  • Elena Stanghellini

    (University of Perugia)

Abstract

The attention to sustainable finance has dramatically increased in the recent past. In Europe, the perceived relevance of financial sustainability is mainly due to the European Commission’s commitment to integrate Environmental, Social and Governance (ESG) parameters into all aspects of the financial system. Our objective is to investigate the existence and extent of the impact of compliance with ESG on Credit Rating of European companies. With reference to the financial sector, we use mediation analysis to disentangle the effect of standard balance sheet indicators (measuring the stability and leverage of a company) on Credit Ratings, into a direct one and an indirect one, this second mediated by the ESG rating. Given the different implications of the three aspects of the overall score, Environment, Social and Governance, we apply the methodology to each score separately considered. Results show that only Governance plays a role, with a significant indirect effect that is, however, negligible in magnitude. Data are provided by Thomson Reuters.

Suggested Citation

  • Manuela Fasano & Barbara Guardabascio & Elena Stanghellini, 2023. "The Role of ESG on Credit Rating in the Banking Sector: A Mediation Analysis to Disentangle the Direct and Indirect Effects," Palgrave Studies in Impact Finance, in: Luca Spataro & Maria Cristina Quirici & Gabriella Iermano (ed.), ESG Integration and SRI Strategies in the EU, chapter 0, pages 153-173, Palgrave Macmillan.
    • Handle: RePEc:pal:psifcp:978-3-031-36457-0_8
    DOI: 10.1007/978-3-031-36457-0_8
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