The Impact of ESG Performance and Green Bonds on Credit Ratings and Credit Spreads in Scandinavia

Abstract

We study the relationship between Environmental, Social, and Governance (ESG) scores and credit ratings for 80 publicly listed firms in Norway, Sweden, and Denmark from 2013 to 2024. Using ESG scores from the London Stock Exchange Group and converting credit ratings to numerical values, we conduct pooled and panel regression analyses to investigate the statistical relationship. Our analysis shows a small but significant positive correlation between ESG scores and credit ratings. The main finding is that a higher ESG score is associated with a 0.04- notch higher credit rating, controlling for firm-specific characteristics. Further, we show that issuing green bonds also enhances credit ratings. Higher ESG scores are also linked to lower credit spreads, indicating reduced credit risk. These results confirm that ESG factors significantly impact credit risk at both the company and bond levels, thereby providing valuable insights for investors and companies by integrating ESG considerations into credit risk assessments.