Environmental, social and governance (ESG) risks--and opportunities-- are a material part of credit analysis, whether for insurers or banks, or for sovereign and local and regional governments (LRGs), says S&P Global Ratings.
The ESG acronym is increasingly coming to the forefront with investors, regulators, and politicians around the globe. And for good reason—ithese three letters encapsulate myriad risks (and opportunities) that affect the creditworthiness of rated issuers.
Some, like governance risks, have existed for a very long time in one form or another. Others, like social or environmental considerations, are not new, but have gained importance recently.
In a report, S&P Global Ratings said it has performed a two-year review of ESG factors, and how they influenced, positively or negatively, the creditworthiness of rated global sovereigns, LRGs, banks, and insurers.
For that period, from 31 July 2016 - 31 July 2018, the international rating agency found 147 cases globally where these factors resulted in a rating action.
"The conclusion is clear: ESG factors affect all types of issuers, everywhere," said S&P Global Ratings credit aalyst Pierre Gautier in the report, entitled, "How Environmental, Social, And Governance Factors Help Shape The Ratings On Governments, Insurers, And Financial Institutions."
Furthermore, governance risks, based on the agency's observations, were behind the majority (65%) of these rating actions.