The Link Between ESG Ratings and Credit Ratings: Empirical Evidence from Nigerian Listed Firms

This study examines the relationship between Environmental, Social, and Governance (ESG) ratings and credit ratings among Nigerian listed firms over 35 years (1991-2025). Using panel regression analysis on a sample of nine firms, we investigate whether superior ESG performance translates into better creditworthiness in an emerging market context. Controlling for firm size, profitability, leverage, growth opportunities, age, liquidity, earnings volatility, board independence, and board gender diversity, our findings reveal a statistically significant positive relationship between ESG ratings and credit ratings. The results indicate that a one-unit increase in ESG ratings is associated with a 0.342-point improvement in credit ratings (β = 0.342, p < 0.01), suggesting that Nigerian credit rating agencies and lenders increasingly incorporate non-financial ESG metrics into their risk assessment frameworks. This study contributes to the limited empirical literature on ESG-credit linkages in Sub-Saharan African markets and provides evidence that sustainable business practices serve as credible signals of reduced default risk and enhanced corporate reputation in Nigeria. The findings have important implications for corporate sustainability strategies, credit risk management, and regulatory policy in emerging economies. We discuss theoretical mechanisms, compare our results with international evidence, acknowledge methodological limitations, and propose future research directions to advance understanding of ESG materiality in credit markets.