The Impact of Economic, Social and Governance (ESG) Disclosures on Corporate Credit Spreads and Term Structures

This paper examines whether ESG disclosures are associated with corporate credit risk, as measured by credit default swap (CDS) spreads, and whether they influence the term structure of credit risk. Using a sample of approximately 6,000 firm-year observations from U.S. and European firms over the period 2008–2025, we find that higher levels of ESG disclosure are associated with higher CDS spreads, particularly at medium and longer maturities. This suggests that ESG disclosure may reflect underlying firm risk, transition exposure, or increased scrutiny by market participants, rather than serving solely as a mechanism to reduce perceived default risk. While ESG performance exhibits a similar positive association with CDS spreads, its effects are generally smaller and less consistent. Furthermore, ESG disclosure is positively related to the slope of the CDS term structure, indicating a steeper credit curve and greater perceived long-term risk relative to short-term risk. Overall, our findings suggest that ESG disclosure functions not only as a transparency mechanism but also as a signal of risk exposure incorporated into credit pricing.