Abstract
The environmental dimension of corporate social responsibility (CSR) has been considered as the most significant feature of CSR since it has implications for the wellbeing of society and the sustainability of national economies. Corporate environmental performance (CEP) is one specific aspect of firms’ investment that is being closely monitored by stakeholders and investors and has been a prominent determinant of firms’ financial performance and creditworthiness. Nevertheless, CEP is a multi-dimensional issue, a fact that has not been considered extensively by the literature. The scope of this chapter is to examine the impact of corporate environmental performance (capturing three dimensions namely emission reduction, environmental innovation, and resource use efficiency) on firms’ creditworthiness, measured through bonds credit ratings. The chapter quantitatively analyzes a sample of 3329 unique listed firms originating from 24 EU countries, over the period 2003–2020. Empirical evidence documented a positive association of enhanced CEP performance on the ratings of bonds. The results remain robust after a series of sensitivity tests. Finally, useful policy implications for investors and managers are derived from this research.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
References
Barclays Bank Ireland PLC. (2021, March). Summary of sustainability risk policy. Dublin, Ireland.
Barth, F., Hübel, B., & Scholz, H. (2022). ESG and corporate credit spreads. The Journal of Risk Finance, 23(2), 169–190.
Bauer, R., & Hann, D. (2010). Corporate environmental management and credit risk. Working Paper. SSRN: http://ssrn.com/abstract=1660470.
Cai, L., J. Cui, and H. Jo. (2016). Corporate environmental responsibility and firm risk. Journal of Business Ethics, 139, 563–594.
Cespa, G., & Cestone, G. (2007). Corporate social responsibility and managerial entrenchment. Journal of Economics and Management Strategy, 16(3), 741–771.
Chabowski, B., Chiang, W. C., Deng, K., & Sun, L. (2019). Environmental inefficiency and bond credit rating. Journal of Economics and Business, 101, 17–37.
Chakraborty, A., Gao, L. S., & Sheikh, S. (2019). Managerial risk taking incentives, corporate social responsibility and firm risk. Journal of Economics and Business, 101, 58–72.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.
Chiang, W. C., Shang, J., & Sun, L. (2017). Broad bond rating change and irresponsible corporate social responsibility activities. Advances in Accounting, 39, 32–46.
Dimitropoulos, P., & Koronios, K. (2021). Corporate environmental responsibility, accounting and corporate finance in the EU. Springer Nature, Cham, Switzerland. https://doi.org/10.1007/978-3-030-72773-4_8
Dimitropoulos, P. E. (2022). A review of internet financing through peer-to-peer lending: A cross-country comparative analysis. In A. Thrassou, D. Vrontis, L. Efthymiou, Y. Weber, S. M. R. Shams, & E. Tsoukatos (Eds.), Business advancement through technology volume I. Palgrave studies in cross-disciplinary business research, in association with EuroMed academy of business. Palgrave Macmillan. https://doi.org/10.1007/978-3-031-07769-2_4
European Securities and Markets Authority (ESMA). (2019). Final report-Guidelines on disclosure requirements applicable to credit ratings. ESMA 33-9-320.
Gillan, S. L., Koch, A., & Starks, L. T. (2021). Firms and social responsibility: A review of ESG and CSR research in corporate finance. Journal of Corporate Finance, 66, 101889.
Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798.
Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30(4), 425–445.
Gong, G., Xu, S., & Gong, X. (2018). On the value of corporate social responsibility disclosure: An empirical investigation of corporate bond issues in China. Journal of Business Ethics, 150, 227–258.
HSBC. (2021, February). Introduction to HSBC’s sustainability risk policies.
Hsu, F. J., & Chen, Y. C. (2015). Is a firm’s financial risk associated with corporate social responsibility? Management Decision, 53(9), 2175–2199.
Hu, J., Long, W., Wang, Y., & Zhou, L. (2021). Do participants in the bond market care about corporate social responsibility? Evidence from China. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-01-2021-0156
Jiraporn, P., Jiraporn, N., Boeprasert, A., & Chang, K. (2014). Does corporate social responsibility (CSR) improve credit ratings? Evidence from geographic identification. Financial Management, 43(3), 505–531.
Kim, M., Surroca, J., & Tribó, J. (2013). The impact ethical behavior on syndicated loan rates. Journal of Banking and Finance, 38, 122–144.
Migliorelli, M. (2020). The sustainability–financial risk nexus. In M. Migliorelli & P. Dessertine (Eds.), Sustainability and financial risks (Palgrave Studies in Impact Finance). Palgrave Macmillan. https://doi.org/10.1007/978-3-030-54530-7_1
Migliorelli, M., & Marini, V. (2020). Sustainability-related risks, risk management frameworks and non-financial disclosure. In M. Migliorelli & P. Dessertine (Eds.), Sustainability and financial risks (Palgrave Studies in Impact Finance). Palgrave Macmillan. https://doi.org/10.1007/978-3-030-54530-7_4
Moser, D., & Martin, P. (2012). A broader perspective on corporate social responsibility research in accounting. The Accounting Review, 87(3), 797–806.
Nguyen, P., & Nguyen, A. (2015). The effect of corporate social responsibility on firm risk. Social Responsibility Journal, 11(2), 324–339.
Oikonomou, I., Brooks, C., & Pavelin, S. (2014). The effects of corporate social performance on the cost of corporate debt and credit ratings. The Financial Review, 49, 49–75.
Raman, K. K. (1981). Financial reporting and municipal bond rating changes. The Accounting Review, 56(4), 910–926.
Schröder, M. (2014). Financial effects of corporate social responsibility: A literature review. Journal of Sustainable Finance & Investment, 4(4), 337–350.
Seltzer, L. H., Starks, L., & Zhu, Q. (2022). Climate regulatory risk and corporate bonds. NBER Working Paper No. 29994, http://www.nber.org/papers/w29994
Stellner, C., Klein, C., & Zwergel, B. (2015). Corporate social responsibility and Eurozone corporate bonds: The moderating role of country sustainability. Journal of Banking and Finance, 59, 538–549.
Thrassou, A., Efthymiou, L., Vrontis, D., Weber, Y., Shams, S. M. R., & Tsoukatos, E. (2022a). Editorial introduction: Crisis in context. In D. Vrontis, A. Thrassou, Y. Weber, S. M. R. Shams, E. Tsoukatos, & L. Efthymiou (Eds.), Business under crisis volume I. Palgrave studies in cross-disciplinary business research, in association with EuroMed academy of business. Palgrave Macmillan. https://doi.org/10.1007/978-3-030-76567-5_1
Thrassou, A., Uzunboylu, N., Efthymiou, L., Vrontis, D., Weber, Y., Shams, S. M. R., & Tsoukatos, E. (2022b). Editorial introduction: Business under crises: Organizational adaptations. In D. Vrontis, A. Thrassou, Y. Weber, S. M. R. Shams, E. Tsoukatos, & L. Efthymiou (Eds.), Business under crisis, volume II. Palgrave studies in cross-disciplinary business research, in association with EuroMed academy of business. Palgrave Macmillan. https://doi.org/10.1007/978-3-030-76575-0_1
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Dimitropoulos, P.E., Koronios, K. (2023). Corporate Environmental Performance and Bond Ratings: European Evidence. In: Vrontis, D., Thrassou, A., Efthymiou, L., Weber, Y., Shams, S.M.R., Tsoukatos, E. (eds) Business for Sustainability, Volume I. Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-37361-9_7
Download citation
DOI: https://doi.org/10.1007/978-3-031-37361-9_7
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-031-37360-2
Online ISBN: 978-3-031-37361-9
eBook Packages: Business and ManagementBusiness and Management (R0)