Environmental, social and governance (ESG) issues factored into one-third of the rating actions that Moody’s Investors Service took on private-sector issuers in 2019.
In a new report, the rating agency said that ESG factors were material credit considerations in 33% of its rating actions last year, with many of those actions involving more than one ESG-driven issue.
Of the approximately 2,500 rating actions Moody’s took in 2019, 88% cited governance issues, 20% involved social issues, and 16% pointed to environmental considerations.
“Governance considerations are most frequently cited, highlighting the importance and pervasiveness of governance as a rating consideration across sectors globally,” said Robard Williams, senior vice president at Moody’s.
“The ESG issues cited in our 2019 rating actions spanned all of the key categories of environmental, social and governance risk,” Williams noted.
Moody’s said that rating actions that involved ESG factors were widely distributed across sectors, but exposure to specific issues varied by sector and issuer.
For instance, sectors such as auto manufacturers, coal companies, utilities and power companies had the highest proportion of rating actions involving environmental considerations.
“ESG issues are likely to be of growing importance in our assessment of credit quality, driven by factors such as stricter environmental regulations, and heightened public awareness of issues such as climate change, sustainability and diversity,” said Swami Venkataraman, senior vice president at Moody’s.
Moody’s reported that 19% of rating actions citing ESG factors were negative, about 12% were positive, and the remaining 69% were neutral.
“However there was a material difference in the distribution of negative rating actions across the three ESG issues,” the rating agency said.
In rating actions that cited social considerations, 27% were related to negative actions, compared to 20% for environmental issues and 18% for governance factors.