As of January 7, 2019, Fitch has implemented ESG relevance score for all corporates it covers.
According to Fitch, there was a great demand from credit industry stakeholders in recent years about the impact of ESG on credit rating. Stakeholders are worried mainly on WHEN and HOW it occurs.
It’s important to note that not all ESG risks impact the company’s credit risk (Fitch’s main focus). In fact, less than 5% of ESG risks affect the company’s credit risk.
Fitch’s proposal is to remain focused on credit. Fitch does not want to measure the evolution of the company’s ESG, if ESG is currently good or bad or if there is an expectation of improvement; just focus on developing a score and how it affects credit.
Fitch has developed 14 ESG elements: 5 for Environment, 5 for Social and 4 for Governance (listed below).
In the Fitch global study, only 22% of the issuers had a score of 4 or 5. Looking at Brazil, 55% had a score of 4 or 5; the main issue was governance. This demonstrates the need for improved governance in Brazil.
The ESG rating is assigned by the same analyst team that currently assigns the credit rating.
See the video in the link.
Also see the presentation in the link.