An ESG-Modified Credit Risk Assessment Model Based on Decision Tree Model

DOI

10.2991/978-94-6463-036-7_4How to use a DOI?

Keywords

Credit risk assessment; ESG scoring; Relative ESG scoring; Decision tree model

Abstract

How to accurately assess corporate credit risk is a very important issue for financial institutions such as banks. Especially after the 2008 financial crisis, the discussion of credit ratings has gained more and more attention, and various evaluation models have been proposed to predict credit risk for enterprises. This paper is different from the traditional evaluation system, relying only on financial indicators. In this research, the ESG performance that reflects the sustainable development ability of the enterprise is included in the company's evaluation system for analysis. In addition, considering the inherent differences in ESG performance between different industries, a new indicator—relative ESG scoring is created to eliminate industry impact and obtain a more fair ESG evaluation. Then, this paper collects the data of 51 companies in different industries, establishes three decision tree models for comparison, adds ESG performance and relative ESG scoring in turn, and finally gets the model prediction accuracy rates: 71.43%, 80.95%, and 85.71%, respectively. After analyzing the results, it is proved that the addition of ESG performance and the newly created indicator can significantly improve the prediction accuracy of the credit risk assessment model, which provides a new idea for improving the index system of the credit risk assessment model.

Copyright

© 2022 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Haiyue Chen
PY  - 2022
DA  - 2022/12/31
TI  - An ESG-Modified Credit Risk Assessment Model Based on Decision Tree Model
BT  - Proceedings of the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022)
PB  - Atlantis Press
SP  - 15
EP  - 21
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-036-7_4
DO  - 10.2991/978-94-6463-036-7_4
ID  - Chen2022
ER  -