ESG Rating and Company’s Financial Policy

This research was aimed to discover a relationship between debt level of the company and its ESG score. Not only overall debt level was investigated, but also its parts – long term, short term, bank, public debts, commercial paper, revolving credit, term loans, senior bonds and notes and subordinated bonds and notes. This study used panel data of S&P 500 index companies to analyze the debt structure of companies depending on their ESG score. The results of the study can be applied to companies from similar indices. During the study, traditional methods of assessing panel data were used, and in order to combat endogeneity, the GMM method was used. The first result states, that there is a positive dependence between debt level of a company and its ESG score. Moreover, bank debt ratio as well as its parts – revolving credit ratio and term loans ratio have negative relationship with ESG score. While public debt ratio and one of its part- senior bonds and notes ratio have positive significant relationship with ESG score. This is supported under GMM estimation. The major part of public debt are senior bonds and notes according to this study and they are the driving forces of the final outcome. Concerning bank debt, it cannot be said whether term loans or revolving credit led to such an outcome. Moreover, under GMM positive relationship of short term debt ratio and ESG score was proved.