Environmental, social, and governance (ESG) issues are almost never a positive factor in credit ratings, according to a new report from Fitch Ratings.
The rating agency said that ESG factors have negative or neutral impacts on the “vast majority” of its ratings. They’re almost never positive.
Of its 10,500 ESG scores for issuers and transactions globally, only about 310 of them are positive scores, Fitch said.
Positive scores are most common for sovereign ratings, it said: “The proportion of sovereign issuers with at least one positive score is far higher than for any other sector.”
All of the positive environmental scores are in the corporate sector, while the majority of positive social scores involve structured finance transactions that feature government-sponsored social housing loans, the report said.
Looking ahead, there’s some scope for ESG to more often become a positive.
“For financial institutions, more favourable regulatory treatment of exposures supporting environmental or social objectives could trigger further positive scores,” Fitch said.
And as the renewable energy sector grows, there may be more positive scores for corporates and project finance issuers, it also noted.
“But positive ESG impact is likely to remain marginal to credit ratings in the near term while it is driven by niche rating model or sector-specific factors,” it said.