The Relationship between the Credit Risk & the ESG Score: Evidence from the Stoxx Europe 600

This study aims to analyze and assess the effect of Environmental, Social, and Corporate Governance (ESG) practices on credit risk with the objective of implementing the literature and academic research on this increasingly relevant issue. The study first provides a comprehensive view of the ESG subject to then evaluate and estimate the relationship between a firm’s ESG score and its creditworthiness, in this case, measured by the Altman Z-score. The analysis was conducted by using the Refinitiv Eikon platform to collect the dataset and the statistical software Stata to process it. Moreover, a cross-sectional descriptive analysis and a multivariate regression were used to analyze the sample of 498 companies selected from the Stoxx Europe 600 index. In particular, the results show an aggregate negative and statistically significant effect of the ESG practices on the Altman Z-score, and how such effect may vary depending on the individual pillars. Furthermore, a series of variables with a control function in relation to the financial and ESG performance were also included to improve the estimation of the general analysis.