Proposed U.S. legislation to mandate public company ESG disclosure would drive increased corporate issuance of green bonds and other sustainability-linked securities, says Fitch Ratings.
In a new report, the rating agency said that proposed U.S. legislation — which passed the House of Representatives in June but still has to get through the Senate — would standardize ESG disclosure and require issuers to consider ESG metrics in their long-term strategic plans.
The bill would also require disclosures related to political contributions, executive compensation, climate risk, workforce demographics and cybersecurity, it noted.
If passed, the legislation would boost the fledgling market for green and sustainability-linked investments, Fitch said.
Globally, green bond issuance reached record levels in 2020, with US$270 billion worth of new issuance last year, Fitch reported. But less than 5% of that total — about US$10.6 billion — was issued by non-financial corporations in North America, it said.
Moreover, this represented a decline from the previous year when $12.8 billion worth of green bonds was issued by North American non-financial corporates, it noted.
Standardizing disclosure should help boost issuance, the report suggested.
“A uniform disclosure framework would help ESG investors adhere to investment guidelines by providing better transparency and comparability across issuers. It would also expand access to capital for issuers with exposure to green-house gas emissions as assets dedicated to sustainable investing continue to grow,” Fitch said.
Tougher disclosure requirements would help issuers too, the report said.
“ESG bond issuers already have to track, monitor and report on the use of proceeds and progress on sustainability targets, with increasing demand for third-party verifications, so standardized reporting would enhance credibility with ESG investors,” Fitch said.