Abstract
This paper presents the first study that systematically examines the implications of ESG adoption for the credit ratings business. We find that, with a recent move by Standard \& Poor’s and Moody’s towards incorporating ESG issues into their analysis, credit ratings positively reflect firms with lower carbon emissions and better social ratings. Despite the new recognition of such issues by credit rating agencies, credit ratings are no better in terms of informational quality than before. This is concerning as firms are being rewarded and punished through policies that do not appear to contribute significantly to a better understanding of their creditworthiness.
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