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The mitigation role of corporate sustainability: Evidence from the CDS spread

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  • Caiazza, Stefano
  • Galloppo, Giuseppe
  • La Rosa, Giovanni

Abstract

We investigate the mitigation effect of firms’ ESG, a proxy of sustainability, on the CDS issued by corporations listed on the S&P500. We aim to shed new light on the risk mitigation effect by disentangling the empirical evidence across economic sectors and the ESG determinants. Results provide strong evidence that ESG scores are negatively associated with firm credit risk once controlling for endogeneity. These conclusions are robust after controlling for restructuring clauses, financial crisis period, and different maturities. Under the Basel framework, financial intermediaries could operate with lower regulatory capital with an active risk management strategy based on CDS trading policy.

Suggested Citation

  • Caiazza, Stefano & Galloppo, Giuseppe & La Rosa, Giovanni, 2023. "The mitigation role of corporate sustainability: Evidence from the CDS spread," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007371
    DOI: 10.1016/j.frl.2022.103561
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