Do debt investors care about ESG ratings?

ESG assets are projected to increase to $53 trillion by 2025 or a third of global assets under management.1 However, little is known about the extent to which debt investors incorporate ESG ratings into their investment decisions and the implications for the cost of debt for firms. To answer this question, we exploit a methodology-driven change in
ESG ratings by one of the largest ESG rating providers - Refinitiv ESG.

This allows us to study the effect of ESG rating changes on loan market-based credit spreads using a sample of secondary corporate loan market prices (see e.g., Saunders, Spina, Steffen, andStreitz (2021)).