Abstract
Environmental, social, and governance (ESG) topics are becoming omnipresent in capital markets. Despite the increasing importance of ESG-related risks, markets still exhibit a high degree of information asymmetry due to the mostly qualitative nature of ESG-related information. Using natural language processing and 2,300 annual reports, we examine how ESG-related content affects the market’s credit risk perception. We find that market participants integrate the tone and provision of numerical ESG-related information into their credit risk assessment. Additional evidence suggests that executives engage in strategic impression management, particularly thematic manipulation and manipulation through numerical information in their presentation of ESG content in annual reports, to improve the market’s perception of a firm’s ESG activities and thus to positively influence public perception of a firm’s credit risk.