The integration of environmental, social, and governance (ESG) issues into risk-taking policies and firms’ strategic planning has become a topic of interest for banks, managers, researchers, and policymakers. We used a difference-in-difference econometric regression on a dataset of 1991 European listed companies to reply to the following research questions: (RQ1) Does each ESG pillar score impact the same magnitude firms’ probability of default on longer time horizons?; (RQ2) Does the ESG risk mitigation effect changes in the function of the sector firms belong to?. The first contribution confirms the existence of the risk mitigation effect, even for short-medium term probabilities of default. Additionally, we reveal that environmental score produces a remarkable impact on short-medium term default probabilities, while governance score improvements are consistent in the medium-long run. Conclusively, we quantify the sectorial impact on ESG risk mitigation effect for a subset of ten sectors.
