This study integrates environmental factors, such as carbon emissions and climate-related risks, with traditional financial metrics to enhance corporate credit rating predictions for approximately 2,000 publicly listed Chinese firms. Utilizing Principal Component Analysis (PCA) for dimensionality reduction and Gaussian Mixture Models (GMM) for probabilistic clustering, the approach effectively addresses multicollinearity and captures nuanced financial-environmental relationships. The PCA-GMM framework not only improves predictive accuracy over traditional methods but also maintains high interpretability, making it suitable for complex risk profiles. Empirical results demonstrate that firms with lower carbon emissions and robust financial health receive higher credit ratings, providing valuable insights for investors and policymakers. This model supports sustainable economic growth in alignment with China’s dual carbon goals by highlighting the critical interplay between financial performance and environmental responsibility.
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