Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/281659 
Year of Publication: 
2022
Citation: 
[Journal:] Amfiteatru Economic Journal [ISSN:] 2247-9104 [Volume:] 24 [Issue:] 61 [Year:] 2022 [Pages:] 720-738
Publisher: 
The Bucharest University of Economic Studies, Bucharest
Abstract: 
Targets defined in accordance with Environmental, Social and Governance (ESG) criteria confront the business world, particularly the banking industry, with new challenges. The aim of this paper is to study the effect of ESG controversies on the credit rating of the European banking sector, involving 65 European banks from 18 countries in the 2011-2020 period. This empirical study includes different approaches. Firstly, we apply an ordered logit model to ascertain the influence of ESG concerns on credit ratings. Secondly, we analyse the impact of ESG controversies on the probability of obtaining a better rating scale through the marginal effects. And finally, we use matching analysis to measure the real impact of ESG controversies on credit ratings. Our findings suggest that ESG controversies have a negative effect on credit rating. In addition, it is a relevant negative factor in the probability of obtaining a better rating in future reviews of credit assessments. Specifically, the lower the level of ESG controversies, the greater the probability of achieving the highest credit ratings. This research provides a comprehensive view of the impact of ESG controversies on credit ratings awarded to European financial institutions. European banks should take special care to avoid such controversies, as a source of reputational risk, when setting their policies so that their credit ratings would not be affected.
Subjects: 
banking sector
controversy
credit rating
environmental
social and governance (ESG)
JEL: 
G21
G34
P34
Q56
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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