ESG (CSR) criteria and risk indicators in credit assessment and probability of default evaluation

The study investigates the relationship between responsible business conduct and financial performances. Within the risk management, the analysis takes into account the responsible actions (according to environmental, social and governance, “ESG”) affecting the riskiness of the enterprises from a creditworthiness improvement and probability of default reduction perspective. Specifically the study regards the small, medium and large enterprises of the Italian manufacturing sector. The enterprises considered took part in European funding which envisaged rewards schemes for the stakeholders adopting responsible business conduct according to the definition OECD and COM/681/2011/CE. Cluster analysis and regression analysis, carried out using empirical database, point out that for small enterprises there are positive correlation between ESG and debt ratio, number of local unit and employees; for medium enterprises there is a robust correlation between ESG and ROI as well as code of ethics, risk assessment and improved company structure. In the large enterprises the ESG behaviors are connected to the increase of the internationalization, the relocation of production, the use of the business welfare and the risk assessment in order to reduce the institutions’ administrative responsibility. Economically and financially speaking, the large enterprises ESG-oriented have improved performances according to ROA, ROI, ROS, ROE indicators, long-term debt and debt ratio.