ESG becoming a ubiquitous theme in global financial markets - Fitch | Daily News

ESG becoming a ubiquitous theme in global financial markets - Fitch

Environmental, Social, and Corporate Governance (ESG) have grown to become a ubiquitous theme in global financial markets. Issuers, intermediaries and investors face growing demands to provide measurable clarity about the influence of ESG factors on their activities.

While the initial focus of ESG centred primarily on equity markets, debt investors are an increasingly important voice in shaping future progress. Credit poses a particular set of demands on the investor — particularly when it comes to managing more immediate risk which is a critical focus. We are indebted to the United Nations-supported Principles for Responsible Investment (UN PRI) for its important work with investors in articulating specific needs and developing a framework and taxonomy around which the financial community can rally.

The implications of ESG for Fitch are clear. Since 2015, investors have been calling on credit rating agencies to systematically incorporate ESG characteristics into issuer ratings.

Their demands include greater clarity around material ESG characteristics at a sector level, transparency on how ESG affects rating reviews, proactive identification of ESG risks, and highlighting insufficient disclosure of material ESG elements. Fitch’s approach to ESG is a direct response to these investors, placing their needs at the heart of our thinking. Fitch Ratings is the only credit rating agency with an entity/issue specific integral, comprehensive and credit-focused approach to displaying sector and issuer level ESG credit risks across all the entities we rate.

Since the launch of our ESG Relevance Scores in January 2019, we are now maintaining over 140,000 individual Environmental, Social or Governance scores for more than 10,000 entities and transactions worldwide. The scope of our coverage includes high-yield and investment-grade credits, Emerging and Developed Markets, and issuers from Corporates, Financial Institutions, Sovereigns, Public Finance, Project Finance, Covered Bonds and Structured Finance. ESG relevance scores are fully integrated into our core research, derived by our regular analysts and supported by a team of Sustainable Finance specialists. This granular, data-intensive activity also informs our thematic ESG research, complementing issuer-level detail with the wider context. There is still much to do. ESG scores of all types remain notoriously incomparable.

Companies are wrestling with the practical challenges of ESG measurement. Investors are striving to comprehend new types of data and incorporate them into meaningful dialogue with stakeholders.

These challenges will be overcome as methodologies are refined and understanding grows. As a trusted provider of data and analysis to financial decision-makers, we recognize our important role in making this transition happen.

As we continue to strengthen our capabilities, Fitch aims to examine each ESG component in greater depth to surface insights that matter from an investment perspective. We will do so with an eye on our core goal of providing investors with the highest quality analysis to support investment decisions. The following chapters provide a comprehensive overview of Fitch’s contributions to this effort so far.