IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v57y2025i57p9698-9712.html

Dissecting E, S, and G for risk mitigation: insights from the term structure of CDS

Author

Listed:
  • Rintu Anthony
  • Ranjitha Ajay

Abstract

In this study, we utilize a comprehensive dataset of US-traded credit default swaps (CDS) to assess the impact of environmental, social, and governance (ESG) adoption on firm credit risk. Our study examines corporate bonds with key maturities from 0.5 to 30 years, covering data from 2007 to 2022. We apply fixed effects regression to analyse the impact of ESG scores on CDS spreads. The results are validated through a battery of robustness checks primarily the 2SLS method. The study finds that ESG scores, including the individual pillars, play a significant role in mitigating credit risk. The intriguing aspect of the finding is the decline in risk mitigation as the term-to-maturity increases. Further, the social pillar causes the highest sensitivity to credit risk, followed by the environmental and governance pillars. The effect of ESG adoption is slightly greater for subordinated bonds compared to senior tranches, however, the effects diverge for individual pillars. The study offers practical insights as understanding the relationship between sustainable practices and CDS term structure helps refine investment strategies and specifically pricing of credit risk.

Suggested Citation

  • Rintu Anthony & Ranjitha Ajay, 2025. "Dissecting E, S, and G for risk mitigation: insights from the term structure of CDS," Applied Economics, Taylor & Francis Journals, vol. 57(57), pages 9698-9712, December.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:57:p:9698-9712
    DOI: 10.1080/00036846.2024.2423066
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2024.2423066
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2024.2423066?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.

    More about this item

    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:taf:applec:v:57:y:2025:i:57:p:9698-9712. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    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.