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Fitch's scoring system to show effect of ESG on credit ratings

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Fitch's scoring system to show effect of ESG on credit ratings

Fitch Ratings launched ESG Relevance Scores, a scoring system that reflects how environmental, social and governance factors impact individual credit rating decisions.

The scores will be available for all asset classes in the public domain. Fitch has begun the process with 1,500 nonfinancial corporate ratings, to be followed by banks, nonbank financial institutions, insurance, sovereigns, public finance, global infrastructure and structured finance.

The scores should not be seen as a reflection of whether an entity engages in good or bad ESG practices, but they are indicative of the ESG-related risk elements influencing the credit rating decision, the rating agency said. Fitch had formed a global sustainable finance group in 2018 for reviewing how ESG factors are incorporated into the credit rating process.

"Initial results show that 22% of our current corporate ratings are being influenced by E, S or G factors, with just under 3% currently having a single E, S or G sub-factor that by itself led to a change in the rating," Andrew Steel, global head of sustainable finance at Fitch Ratings.

For rated entities with Fitch Ratings Navigators, ESG Relevance Scores will be published during the first quarter of 2019.