ESG Default Risk Mitigation Effect: A Time-Sectorial Analysis

Egidio Palmieri, Enrico Fioravante Geretto () and Maurizio Polato ()
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Enrico Fioravante Geretto: University of Udine
Maurizio Polato: University of Udine

Chapter Chapter 4 in New Challenges for the Banking Industry, 2023, pp 79-98 from Palgrave Macmillan

Abstract: 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.

Keywords: ESG; Default risk; Risk mitigation effect; Time-sectorial analysis; Difference-in-difference; European firms; Credit risk (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-32931-9_4

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DOI: 10.1007/978-3-031-32931-9_4

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