Study linking ESG performance to credit risk published in Journal of Applied Corporate Finance
SAN FRANCISCO, CA / Truvalue Labs™, the pioneer in AI-driven environmental, social and governance (ESG) data, today announced the results of a new study that finds a connection between ESG performance, as illustrated by Truvalue Labs material ESG data, and credit risk. The findings come from a study by Witold J. Henisz and James McGlinch of the University of Pennsylvania’s Wharton School.
“Our study is the first large-sample empirical study of the mechanisms that link ESG performance to credit risk,” said Henisz. “We found that Truvalue Labs’ ESG scores capture timely and material events such as regulatory inquiries, investigations and lawsuits, which are correlated with credit risk and the likelihood of default.”
The study, “ESG, Material Credit Events, and Credit Risk,” describes cases of companies with relatively weak ESG performance, as indicated by Truvalue Labs’ data at a moment in time, that subsequently experience high-profile negative ESG events leading to measurable increases in credit risk. Such cases include Volkswagen’s emissions scandal, Boeing’s 737 MAX and Wells Fargo’s sales practices.
Henisz and McGlinch analyzed data for a sample of 342 companies from 13 industries, excluding financial services, over the period of 2009 to 2017.
The study found “clear evidence that higher-performing companies on ESG criteria experienced subsequent lower incidence of adverse material events. Companies with lower performance relative to their peers in their industry based on material ESG criteria as defined by the Sustainability Accounting Standards Board (SASB), experienced a higher incidence of adverse material events.”
The authors state that Truvalue Labs is unique among ESG data providers in its ability to show relative performance within an industry and the materiality of different factors by industry.
“At this level of analysis, the ability of Truvalue Labs’ data to take into account relative performance within an industry and the materiality of the ESG criteria was critical,” the authors write. “No other ESG data series to which we have access displayed evidence of positive bivariate correlations in our full sample of firms.”
“We’re pleased to see that ESG materiality by industry reveals credit risk and that our data provides these unique insights,” said Hendrik Bartel, CEO and co-founder of Truvalue Labs. “The findings of this study have encouraged us to accelerate our product development efforts to meet the increased demand for timely and objective data that helps clients uncover risks and opportunities across a growing set of applications.”
About Truvalue Labs™
Truvalue Labs is the first company to apply artificial intelligence (AI) to uncover timely and material Environmental, Social, and Governance (ESG) information at scale. The award-winning company’s mission is to deliver increased transparency to investment professionals by providing data and analytics that go beyond traditional fundamentals. It is backed by investors including Series A round lead Katalyst Ventures, based in San Francisco. The products, Truvalue Platform™, Truvalue Data™ and Truvalue Cloud,™ powered by Truvalue AI, deliver investable insights by revealing value and risk factors from unstructured data at the speed of current events. Visit www.truvaluelabs.com to learn more about the SaaS and API products.
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