Abstract
The purpose of this study was to analyze which dimensions of non-financial environmental responsibility information are more reflected in credit ratings. The non-financial environmental responsibility information used in this study was environmental strategy, environmental organization, environmental management, environmental performance, and stakeholder communication. Based on 1085 companies listed on the Korean capital market from 2013 to 2018, this study reports that the more companies engage in environmental responsibility activities, the better their credit ratings are. Specifically, it found that companies with higher environmental performance and stakeholder communication activities received better credit ratings, while higher environmental management and environmental strategy scores had a relatively weak influence. This indicates that among the corporate environmental responsibilities, the more activities requiring relatively little discretion from managers are performed, the more the reputation capital that is accumulated through corporate environmental responsibility (CER) activities, which leads to higher credit ratings. These associations were found to be strengthened in an information environment where there is a higher degree of information asymmetry and the lifecycle of a firm is at a maturity stage.
Highlights
IntroductionInvestors’ interest in environment, social, and governance (ESG) investing is booming
Investors’ interest in environment, social, and governance (ESG) investing is booming.This trend is called “impact investing”, which indicates investments made into corporations, organizations, and financial funds with the intent of creating a measurable, beneficial social or environmental influence combined with financial performance
Some papers report a positive or insignificant relationship between ESG investment and debt financing costs [20,21,22]. These vague, inconclusive, and inconsistent results motivated a study to investigate the economic consequences of ESG investment for credit ratings in this study examined the association between non-financial environmental responsibility information and credit ratings in the Korean bond market
Summary
Investors’ interest in environment, social, and governance (ESG) investing is booming This trend is called “impact investing”, which indicates investments made into corporations, organizations, and financial funds with the intent of creating a measurable, beneficial social or environmental influence combined with financial performance (the definition in Wikipedia). Impact investors invest their resources to raise social and environmental topics. They actively allocate their capital in businesses, non-profit organizations, and funds in industries such as renewable energy, biotech firms, and eco-friendly service companies including housing, healthcare, and sustainable agriculture. Impact investing arises across financial asset classes including private equity/venture capital, liability, and fixed income and can be conducted in either emerging markets or developed countries
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