8. Conclusion

This chapter delves into the growing importance of ESG (Environmental, Social, and Governance) factors in financial research and practice, driven by materiality, investor demand, and regulatory pressures. It explores whether ESG investments pay off in terms of financial performance or risk minimization, with a particular focus on credit risk in the European debt capital market. The study reviews previous research and extends it with an empirical analysis of European corporate bonds issued between 2012 and 2022. It investigates whether ESG factors are already considered in credit risk assessments and uses the conceptual framework by Goss/Roberts (2011) to classify results into risk mitigation and overinvestment views. The findings reveal mixed results, with ESG investments often perceived as risky or not priced in by creditors. However, in times of high ESG preference, governance performance is seen as risk-reducing. The study also discusses the implications for research and practice, highlighting the need for further investigation into ESG operationalization and the endogeneity issue. It concludes that while ESG is gaining traction, its integration into credit risk assessment is still limited and primarily driven by governance performance in high ESG preference periods.