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Can extra-financial ratings serve as an indicator of ESG risk?

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  • Champagne, Claudia
  • Coggins, Frank
  • Sodjahin, Amos

Abstract

We examine whether extra-financial ratings are related to the probability of occurrence of adverse environmental, social and governance (ESG) events, and thus serve as an indicator of ESG-risk. We observe that a firm's global extra-financial performance is negatively related to its likelihood of dealing with adverse ESG-related events. However, for some CSR dimensions, the link between overall performance (strengths and concerns) and risk is positive, which is consistent with a compensation effect. We also observe an cross-dimensional effect whereby extra-financial performance in a specific CSR dimension can affect the probability of occurrence of adverse events associated with other dimensions. Results are robust to a number of tests.

Suggested Citation

  • Champagne, Claudia & Coggins, Frank & Sodjahin, Amos, 2022. "Can extra-financial ratings serve as an indicator of ESG risk?," Global Finance Journal, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:glofin:v:54:y:2022:i:c:s1044028321000363
    DOI: 10.1016/j.gfj.2021.100638
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    4. Anita, Mendiratta & Shveta, Singh & Yadav Surendra, S. & Arvind, Mahajan, 2023. "When do ESG controversies reduce firm value in India?," Global Finance Journal, Elsevier, vol. 55(C).

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