IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v81y2025ics1544612325006440.html

ESG-ETFs and the constituent firms’ default risk mitigation

Author

Listed:
  • Kanno, Masayasu

Abstract

This study examines whether ESG performance contributes to default risk mitigation in firms issuing securities that comprise an ESG-ETF. This study estimates logistic regression models for the panel data. The model-free results show that the credit risk had reduced for eight ESG-ETFs, but not for eleven. In contrast, the model analysis results indicate that in 17 of 21 ESG-ETFs, ESG performance most effectively mitigates the deterioration of the creditworthiness of ESG-ETF’s constituent firms. This study provides an effective credit risk analysis methodology for selecting an ESG-ETF that comprises firms with better creditworthiness for investors and regulators.

Suggested Citation

  • Kanno, Masayasu, 2025. "ESG-ETFs and the constituent firms’ default risk mitigation," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006440
    DOI: 10.1016/j.frl.2025.107384
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325006440
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.107384?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Shrestha, Keshab & Naysary, Babak & Philip, Sheena Sara Suresh, 2023. "Price discovery in carbon exchange traded fund markets," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. D’Ecclesia, Rita Laura & Morelli, Giacomo & Stefanelli, Kevyn, 2024. "Energy ETF performance: The role of fossil fuels," Energy Economics, Elsevier, vol. 131(C).
    4. Banerjee, Ameet Kumar, 2024. "Environmental sustainability and the time-varying changing dynamics of green and brown energy ETFs," Finance Research Letters, Elsevier, vol. 62(PB).
    5. Li, Yunzhong & Zhao, Yu & Ye, Chengfang & Li, Xiaofan & Tao, Yunqing, 2024. "ESG ratings and the cost of equity capital in China," Energy Economics, Elsevier, vol. 136(C).
    6. Duan, Jin-Chuan & Sun, Jie & Wang, Tao, 2012. "Multiperiod corporate default prediction—A forward intensity approach," Journal of Econometrics, Elsevier, vol. 170(1), pages 191-209.
    7. Kanno, Masayasu, 2023. "Does ESG performance improve firm creditworthiness?," Finance Research Letters, Elsevier, vol. 55(PA).
    8. Huang, Yujun, 2024. "Do ESG ETFs provide downside risk protection during Covid-19? Evidence from forecast combination models," International Review of Financial Analysis, Elsevier, vol. 94(C).
    9. Lalwani, Vaibhav, 2024. "Incorporating green assets in equity portfolios," Finance Research Letters, Elsevier, vol. 59(C).
    10. Kanno, Masayasu, 2019. "Network structures and credit risk in cross-shareholdings among listed Japanese companies," Japan and the World Economy, Elsevier, vol. 49(C), pages 17-31.
    11. Chen, Yonghuai & Li, Tao & Zeng, Qing & Zhu, Bo, 2023. "Effect of ESG performance on the cost of equity capital: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 348-364.
    12. Pavlova, Ivelina & de Boyrie, Maria E., 2022. "ESG ETFs and the COVID-19 stock market crash of 2020: Did clean funds fare better?," Finance Research Letters, Elsevier, vol. 44(C).
    13. Dumitrescu, Ariadna & Järvinen, Jesse & Zakriya, Mohammed, 2023. "Hidden Gem or Fool’s Gold: Can passive ESG ETFs outperform the benchmarks?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    14. Balestra, Pietro & Varadharajan-Krishnakumar, Jayalakshmi, 1987. "Full Information Estimations of a System of Simultaneous Equations with Error Component Structure," Econometric Theory, Cambridge University Press, vol. 3(2), pages 223-246, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Supatgiat, Chonawee & Phiromswad, Piyachart & Sahin, Olgun Fuat & Sarajoti, Pattarake, 2025. "Investigating the impact of ESG ratings on ETF performance during market disruptions: Evidence from the COVID-19 pandemic and Russian (full-scale) invasion of Ukraine," Research in International Business and Finance, Elsevier, vol. 77(PA).
    2. Nini Johana Marín-Rodríguez & Juan David González-Ruíz & Sergio Botero, 2025. "Towards New Strategies for Investing: Insights on Sustainable Exchange-Traded Funds (ETFs)," World, MDPI, vol. 6(1), pages 1-27, January.
    3. Anastasia Spyridou & Efstathios Polyzos & Aristeidis Samitas, 2025. "Green assets are not so green: assessing environmental outcomes using machine learning and local projections," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-38, December.
    4. Li, Zhenyang & Jiang, Yuanying, 2025. "ETF connectedness and its applications: Evidence from RCEP member countries," Journal of Multinational Financial Management, Elsevier, vol. 78(C).
    5. Jan Heldmann & Thomas Brückner & Huong Dieu Dang, 2025. "Financial returns of going green: evidence from MSCI indices," Journal of Asset Management, Palgrave Macmillan, vol. 26(7), pages 768-787, December.
    6. Kanno, Masayasu, 2020. "Credit risk assessment in real estate investment trusts: A perspective on blockholding and lending networks," International Review of Financial Analysis, Elsevier, vol. 71(C).
    7. Gaganis, Chrysovalantis & Lozano-Vivas, Ana & Papadimitri, Panagiota & Pasiouras, Fotios, 2020. "Macroprudential policies, corporate governance and bank risk: Cross-country evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 126-142.
    8. Zhao, Xiaoke & Li, Huirong & Liu, Shengtao, 2025. "The power of credit: can the implementation of a social credit system reduce the risk of corporate debt default?," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 749-763.
    9. Angelo Aspris & Edward Bi & Sean Foley & Jiri Svec, 2024. "Crisis Capital: Private Placements During COVID‐19," Abacus, Accounting Foundation, University of Sydney, vol. 60(3), pages 607-626, September.
    10. Xu, Si & He, Xiaoyi & Cao, Chunfang, 2023. "Struggle for survival in credit crunch: The effect of interest rate deregulation in China," China Economic Review, Elsevier, vol. 77(C).
    11. Sigrist, Fabio & Leuenberger, Nicola, 2023. "Machine learning for corporate default risk: Multi-period prediction, frailty correlation, loan portfolios, and tail probabilities," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1390-1406.
    12. Aggarwal, Nidhi & Singh, Manish K. & Thomas, Susan, 2023. "Do decreases in Distance-to-Default predict rating downgrades?," Economic Modelling, Elsevier, vol. 129(C).
    13. BHARTI Bharti & Ratna Priya & Ashish Kumar, 2026. "Decade of research on energy ETF as financial investments: bibliometric and cartographic evidence with a conceptual framework," Future Business Journal, Springer, vol. 12(1), pages 1-17, December.
    14. Moro Russ A. & Härdle Wolfgang K. & Schäfer Dorothea, 2017. "Company rating with support vector machines," Statistics & Risk Modeling, De Gruyter, vol. 34(1-2), pages 55-67, June.
    15. Lou, Zhukun & Li, Sujie & Tong, Jingyi & Zhao, Jing, 2025. "ESG rating disagreement and the cost of equity capital," Global Finance Journal, Elsevier, vol. 66(C).
    16. Abinzano, Isabel & Gonzalez-Urteaga, Ana & Muga, Luis & Sanchez, Santiago, 2020. "Performance of default-risk measures: the sample matters," Journal of Banking & Finance, Elsevier, vol. 120(C).
    17. Anand Deo & Sandeep Juneja, 2021. "Credit Risk: Simple Closed-Form Approximate Maximum Likelihood Estimator," Operations Research, INFORMS, vol. 69(2), pages 361-379, March.
    18. Huzaifa Shamsi, 2024. "Global Supply Chain Vulnerabilities: Assessing Firm Risk, Environmental Commitments, and Information Channels in the wake of COVID-19," IIMA Working Papers WP 2024-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    19. Shih, Yi-Cheng & Wang, Yao & Zhong, Rui & Ma, Yi-Ming, 2021. "Corporate environmental responsibility and default risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    20. Muhammad Atif & Searat Ali, 2021. "Environmental, social and governance disclosure and default risk," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3937-3959, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006440. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.