Can credit rating changes affect corporate carbon emissions? Some evidence from the S&P 500

Using panel data on U.S. S&P 500 firms from 2012 to 2024, this study examines how credit rating changes affect corporate carbon performance. Drawing on the resource-based view and prospect theory, we show that credit rating downgrades lead to a statistically and economically significant deterioration in emission reduction scores. Notably, a downgrade is followed by an average decline of about 1.8 points in the emissions score. In contrast, no significant effect was found for upgrades. However, the study provides evidence to suggest that among investment-grade firms, upgrades lead to significant improvement in emissions performance. Overall, the findings illustrate a reverse logic compared with the existing literature, indicating a financial-constraint channel through which credit market shocks shape firms’ environmental strategies. Moreover, the study signals an apparent financial slack threshold mechanism that is apparent among investment-grade firms. Several implications and limitations are extracted along with avenues for future research.

© 2026 The Author(s). Business Strategy and the Environment published by ERP Environment and John Wiley & Sons Ltd.

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