A new report has revealed that 57% of rated companies in Asia Pacific face ESG risks and these risks work out to more than $4tn in aggregated debt.
The S&P Global Ratings report ESG Risks Negatively Influence Over $4tn Of Debt At Rated Companies In Asia-Pacific covers the rating agency’s ESG credit indicators on more than 500 rated companies in China, India, Indonesia, Japan, Korea, Australia and New Zealand.
The 117-page report released in April 2022 discusses the main ESG trends affecting these companies and found that environmental factors, most notably climate transition risks and waste and pollution have the most significant negative influence, impacting 40% of the companies and almost $3tn of debt.
Governance factors negatively influence about 22% of the rated entities but they are largely issuer-specific. Governance factors influence more negatively the ratings of companies in Indonesia, India and China. The rated firms there are often small, family-owned businesses with below-average internal controls and transparency or include state-owned entities with weak parental oversight.
Social factors have relatively less negative influence (19%) on the credit analysis. Such cases are generally in commodity and mobility sectors, which are sensitive to social capital and health and safety risks respectively.
Government-imposed price controls and community litigation risks often affects the profitability of mining companies. Transport cyclical and infrastructure, non-discretionary retail and leisure were among the first hit by the pandemic.
The report also predicts that these companies will continue to be exposed to environmental risks in the next two years due to fossil fuels still accounting for the majority of the power generation mix in Asia-Pacific, most notably in China, India and Southeast Asia. A