Home Markets Pricing ESG risk in credit markets

Pricing ESG risk in credit markets


Back in 2017, we analysed the link between environmental, social and governance (ESG) factors, and credit spreads in an effort to refine our ability as fixed income investors to more accurately price factors beyond traditional operating and financial risks. We presented the results of that analysis in which we demonstrated that companies with better ESG practices tended to have lower credit default swap (CDS) spreads, even after controlling for credit ratings and other risk factors. Using the results, we plotted predictions of CDS spreads for given values of ESG scores, drawing an innovative implied ESG pricing curve.

In 2018, we published an updated study with a longer sample period which produced similar results. We have now conducted our third iteration, expanding the sample period to include the period from the start of 2012 to the end of a volatile 2020.  We launched the…

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