Social risks can materialize as corporate credit risks, research finds

By James Langton | February 9, 2023 | Last updated on February 9, 2023
2 min read
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Growing economic distress that leads to civil unrest can translate into increased corporate credit risk, says Moody’s Investors Service in a new report.

The combination of high inflation and slower economic growth raises the prospect of social discontent that produces protests and other forms of civil disruption, the rating agency noted.

While it’s well known that these sorts of events can weigh on sovereign credit ratings, they can also translate into corporate credit risk, it said.

Moody’s examined 20 years of data to detect whether episodes of civil disturbances impact corporate credit conditions and credit ratings.

“There was a distinct rating deterioration around the time of the unrest and a worsened rating trend within two years afterward,” it found.

These sorts of social risks can materialize as credit risks through several mechanisms, it noted.

“The occurrence of social protests by itself does not lead to corporate credit deterioration,” it said. “It is the extent to which these events refract risk through three channels — financial market volatility, economic performance, and government fiscal and institutional strength — that determines whether they affect corporate credit profiles.”

Given the importance of institutional strength, the pattern was “more pronounced in emerging markets,” Moody’s said, “likely because advanced economies generally have greater fiscal and economic space to respond to and mitigate social risks.”

The report noted that sovereign social and governance risks scores can help identify where civil unrest could translate into credit risks.

Large economies including India, Mexico, Argentina and Turkey face elevated risk.

“To be clear, we do not predict social risk events in these particular countries,” the report stressed. “Rather, we note the risk of spillovers to credit risk and the relevance for corporate debt issuers if widespread social unrest events were to occur in these countries.”

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.