Governance continues to be by far the most significant Environmental, Social and Governance (ESG) factor affecting credit ratings assigned to non-bank financial institutions (NBFIs), Fitch Ratings says in an updated dashboard.
Governance issues, reflected in Fitch’s ESG Relevance Scores (ESG.RS) assigned globally to rated issuers and transactions, had a credit impact on about a third of NBFI ratings at end-2021. This reflects a mixture of factors relating to key-person risk, strategy execution concerns, organisational complexity and financial transparency concerns.
Social issues are rising in prominence for investors and issuers, affecting about 14% of global NBFI ratings. Social issues for NBFIs often relate to heightened regulatory scrutiny to protect more vulnerable borrowers. Fitch also highlights several instances where social issues have a positive impact on NBFI credit ratings, for example microfinance companies and lenders focused on social missions.
Environmental issues continue to only have a minimal impact on NBFI ratings.