The discussion is based on a exclusive research report of Fitch Ratings on Environmental, Social and Governance (ESG), the new order for the future for improvising the corporate governance of the firms. The report is titled as “ESG Credit Trends 2021.” and based on an extensive survey carried out with the help of 1400 credit analysts based in different countries around the world and traces the ESG trends impacting credit ratings. This research report emphasise on important aspects of ESG. Key highlights of the report are as under.
1) Data Deluge to Increase ESG Scrutiny
Reporting of ESG data is of vital importance as it is necessary to create a broad view of impact. Financial institutions should take lead in due diligence for ESG and make policies to enhance the scope for more entities. Regulators, Government agencies should align their Rules and Regulations with practical ways so that more relevant data can be extracted from corporate sector to set standard benchmarks.
2) Innovation is likely to broaden ESG Reach in Credit
Financial instruments are need to be innovated in a way to make them par with conventional options. Sustainability linked Bonds could have greater access to wide range of entities, if market regulators take necessary policy shift. Associated financial costs for issuers & business entities will be of main concern to make sustainability instruments successful.
3) Path to Net-Zero brings Economic Shifts
Net-Zero pledges by various renowned brands around the world and many governments create hopes for better results soon but it would be harder to achieve as detailed policies yet to be released by many of them. Further, global coordination on such policies will be required as Net-Zero targets require greater Economic Shift.
4) Social Risks will emerge From “New Normal”
The Pandemic has left heavy economic burden on societies around the world and this will affect the affordability of consumers, even for basic needs. Existing inequality and poverty is increasing rapidly. This will be of great concern for issuers and governments have to take extraordinary steps to alleviate such economic burden.
5) Sustainable Governance to Steer Strategy
Corporate Governance frameworks also need to be formalizing for sustainability requirements. It will have impact on matters including, but not limited to, top executive’s remunerations, board practices, director’s duties, shareholders role in decision making etc. Corporate strategies need to be formalized to incorporate ESG aspects for long term sustainability targets.
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