From Carbon Disclosure to Credit Judgement: How Rating Analysts Translate Scope 3 Emissions under Uncertainty

Abstract

Scope 3 emissions place substantial corporate transition exposure outside the reporting entity and are commonly estimated from supplier, customer, product-use and expenditure data. Credit analysis may therefore distinguish environmentally significant information from evidence that is credible and financially material to repayment capacity. Archival research links carbon emissions, climate exposure and ESG variables to ratings and bond pricing, but does not reveal how analysts process uncertain value-chain information before a public rating outcome. This study examines how rating professionals assess Scope 3 materiality, manage incomplete disclosure and translate carbon-risk evidence into credit judgement. It uses an interpretivist qualitative design based on semi-structured interviews with current and former credit analysts, committee members, ESG and methodology specialists, treasury executives and a sustainable-finance adviser, supported by rating methodologies, issuer disclosures and climate-reporting standards. Abductive thematic analysis identifies a four-stage process. Analysts establish a financial transmission channel and rating horizon; assess disclosure credibility, prioritising transparency and consistency over apparent precision; bound incomplete evidence with sector, peer, capital-expenditure, product-market and management proxies; and subject the judgement to committee challenge. The resulting expression ranges from monitoring and rationale language to outlook or rating action. The study contributes a process explanation of climate-related credit judgement, reframes Scope 3 as an information-quality as well as a measurement problem, and shows how organisational routines discipline heuristic reasoning. The findings support category-level disclosure, explicit treatment of uncertainty and clearer communication of how climate evidence affects credit opinions.