Does Environmental Factor Influence the Rating of Creditworthiness? A Comparative Analysis of Developed versus Developing Countries

Kok-Tiong Lim () and Kim-Leng Goh ()
Additional contact information
Kok-Tiong Lim: Faculty of Business and Economics, Universiti Malaya
Kim-Leng Goh: Faculty of Business and Economics, Universiti Malaya

Malaysian Journal of Economic Studies, 2024, vol. 61, issue 2, 215-243

Abstract: This paper examines the influence of environmental factor in the deter-mination of a country's creditworthiness given the world's agenda to contain the rise in global temperature. This paper leverages on two environmental factor proxies, CO2 emissions per capita and renewable energy per capita, to assess whether the environmental factor plays a significant role in determining the sovereign credit ratings (SCRs) issued by three leading credit rating agencies (CRAs), i.e., Moody's, S&P and Fitch for 49 countries spanning the period of 2000 to 2021. The empirical results show that the environmental factor is being considered by the CRAs. Since the signing of the Paris Agreement in 2015, the environmental factor has turned significant for the determination of the SCRs of developing countries, but not for the developed countries. The creditworthiness of developing countries is subjected to a penalty for CO2 emissions. While the level of renewable energy adoption is higher amongst the developed countries, the evidence does not show that their level of CO2 emissions is lower. This paper recommends the CRAs to explicitly state the environmental factor criteria and update their SCR methodologies to ensure uniformity in application.

Keywords: Sovereign credit ratings; ESG; environmental impact; renewable energy (search for similar items in EconPapers)
JEL-codes: F64 G24 Q42 Q54 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mjr:journl:v:61:y:2024:i:2:p:215-243

DOI: 10.22452/MJES.vol61no2.2

Access Statistics for this article

Malaysian Journal of Economic Studies is currently edited by Lim Kian Ping

More articles in Malaysian Journal of Economic Studies from Faculty of Business and Economics, University of Malaya & Malaysian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Malaysian Economic Association ().