Analyzing the Links Between Financial Markets’ ESG Risk Assessment Process and Corporate Sustainability

Abstract

AbstractThe European Union fosters the integration of environmental, social, and governance (ESG) risks in investment decision processes being credit rating agencies crucial in this process. This chapter provides insights on how the financial markets, through credit rating agencies, are integrating ESG risks into the corporate sustainability assessment processes to find out if the ESG risk analysis criteria used by the ratings are aligned with the most important global risks for organizations. To address this, the authors carried out a secondary data analysis of the growth and consolidation of sustainability rating agencies into the sustainable investment market, focusing on explaining how credit rating agencies have integrated ESG risks in their assessment processes. The study shows that in the last years, credit rating agencies have increased the efforts to integrate ESG risks into the corporate sustainability assessment process through the incorporation of the sustainability rating agencies’ assessment methodologies, which entail changes in the decision-making process of companies. However, ESG risk assessments do not seem to be well aligned with the priority global ESG risks to corporate sustainability management.