S&P Global Market Intelligence Research Paper Series | 2021
Corporate Credit Rating Feature Importance: Does ESG Matter?
Abstract
We examine the inclusion of ESG variables, with commonly used financial variables into multi-class corporate credit rating prediction. Using random forests and extremely randomized trees, with mean decrease impurity, mean decrease accuracy and SHapley Additive exPlanations feature importance methods, prediction accuracy is consistent across methods for US and global firms. Environmental and social variables exhibit broad importance across US and global samples, particularly environment pillar score, environmental innovation score, resource use score, emissions score, and CSR strategy score. ESG variables become more pronounced following the financial crisis of 2007-2008, and are important across investment-grade and speculative-grade classes.