Environmental, social and governance factors enter a credit view in one of two ways, and only one of them is analysis.
How do ESG factors enter a credit opinion?
The first way is as a driver of the credit itself. Consider a thermal power generator facing a carbon price, a lender with a concentrated exposure to flood-prone collateral, or a company whose governance lets a promoter pledge shares against undisclosed borrowings. In each case the factor changes the probability of default, the recovery, or the ability to refinance. It belongs inside the leverage and coverage ladders as an input, rather than beside them as a score. The second way is as an overlay score applied after the credit work is done, which mostly measures disclosure quality and correlates with size.
Green and sustainability-linked structures are where the question becomes numerical. A green bond ring-fences proceeds for stated uses; a sustainability-linked bond leaves the proceeds general and steps the coupon up if the issuer misses a stated target. The credit claim usually made about the first is that green bonds price at a small yield concession to the issuer's conventional debt, a "greenium", and the claim can be tested.
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Does a green bond really trade at a premium?
Konark has both. Its conventional bond has 4.9 years to run and yields 8.86%; its green bond has 4.6 years and yields 8.79%, a raw gap of 7.0000 basis points. The two are not comparable as they stand. The issuer's own spread curve rises about 3.2 basis points per year of maturity over this range, so the 0.3-year difference explains 0.9600 basis points, leaving a residual of 6.0400 basis points. Then the liquidity check: the green bond quotes with a 4 basis point half-spread against the conventional bond's 2, so one round trip in the green bond costs 8 basis points of yield, which is 1.3245 times the entire measured residual. An effect you cannot transact without destroying is not an effect you can trade.
The published evidence points the same way. Zerbib, in the Journal of Banking and Finance in 2019, measured a green premium of roughly two basis points on a matched sample, and Larcker and Watts, in the Journal of Accounting and Economics in 2020, found essentially none in a matched municipal pair design. Small, fragile, and highly sensitive to how the control bond is chosen.
How does ESG credit analysis work in India?
For the Indian market the machinery exists and the sample is young. The Securities and Exchange Board of India maintains a framework for green debt securities and a mandatory sustainability report for larger listed companies, both of which give a credit analyst disclosure to work from rather than a rating to accept. Both frameworks have been revised more than once, so the applicable version and thresholds should be checked at the regulator's own site before being relied on (SEBI circulars on green debt securities and on business responsibility and sustainability reporting, checked at authoring, 2026).