Can extra-financial ratings serve as an indicator of ESG risk?

Claudia Champagne, Frank Coggins and Amos Sodjahin

Global Finance Journal, 2022, vol. 54, issue C

Abstract: We examine whether extra-financial ratings are related to the probability of occurrence of adverse environmental, social and governance (ESG) events, and thus serve as an indicator of ESG-risk. We observe that a firm's global extra-financial performance is negatively related to its likelihood of dealing with adverse ESG-related events. However, for some CSR dimensions, the link between overall performance (strengths and concerns) and risk is positive, which is consistent with a compensation effect. We also observe an cross-dimensional effect whereby extra-financial performance in a specific CSR dimension can affect the probability of occurrence of adverse events associated with other dimensions. Results are robust to a number of tests.

Keywords: Corporate social responsibility; Extra-financial performance; ESG risk; Extra-financial ratings; Adverse events; Compensation effects (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:54:y:2022:i:c:s1044028321000363

DOI: 10.1016/j.gfj.2021.100638

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