Impact of Environmental, Social and Governance (ESG) factors and the credit ratings of long-term green bonds issued by oil and gas companies

Abstract

This study investigates the relationship between Environmental, Social, and Governance (ESG) factors and the credit ratings of long-term green bonds issued by oil and gas companies. The objectives of the study are to explore the relationship between ESG dimensions and credit ratings of green bonds and also to assess which of the three ESG dimensions exerts the greatest influence on credit ratings and lastly to provide insights into how oil and gas companies can strengthen their ESG practices to enhance their creditworthiness and attract sustainable investment. The analysis employs regression techniques to examine the effects of the ESG scores on credit rating scores. The regression results show that all three ESG dimensions Environmental, Social, and Governance significantly influence credit rating scores. The Environmental Score (B=0.1845, P=0.0012), Social Score (B=0.1923, P=0.0015), and Governance Score (B=0.1450, P=0.0058) all have positive and significant coefficients, indicating that improvements in any of these dimension’s lead to higher credit ratings. Among the three ESG factors, the Social Score appears to exert the greatest influence, followed closely by the Environmental Score. These findings underscore the importance of ESG practices in enhancing the creditworthiness of oil and gas companies, particularly in the context of green bond issuance. Companies seeking to attract sustainable investment and improve their credit ratings should prioritize strengthening their ESG efforts, with a particular focus on improving social practices and environmental performance.