The objective of this paper is to examine the relationship between changes in ESG (Environmental, Social, and Governance) ratings and scores and the Credit Default Swap (CDS) spreads, utilizing data from US and EU firms. By extending the theoretical framework of sustainable investing, this paper proposes to identify the specific channels through which ESG ratings and scores act as signals for credit risk. The empirical results indicate negative correlations between ESG rating changes and CDS spreads across different maturities. Among the three major pillar scores, comprised of environmental social and governance, only the environmental pillar score exhibits a statistically significant impact on CDS spreads. The findings of this study support the notion that a downgrade in ESG ratings fosters the perception of heightened downside risk and an increased probability of default. Furthermore, by using instrumental variables in the 2SLS regressions, the paper provides empirical evidence that demonstrates causal effects between ESG rating changes and credit risk level.