Assessing the influence of environmental factors on firms' probability of credit default

This study explores the relationship between environmental factors and probability of defaults among Croatian companies. Environmental output data is reported, by the companies, to the Croatian ROO database, which is publicly accessible, and a logistic regression model is employed to examined whether indicators correlate with default risk. The results show limited predictive power, mostly due to small sample size and highly imbalanced data. Although weak associations were found for Waste Generation and Transfer of Industrial Wastewater, the overall model performance is limited. Municipal Wastewater Discharge showed a higher negative association with default probability but with a low overall performance. These findings suggest that while environmental factors may offer some insight into credit risk, additional financial indicators and a larger sample size are necessary to build a more reliable model.