Fitch Ratings launches ESG heat map for financial institutions
Governance is the most influential ESG factor for banks and non-bank financial institutions while social risks are rare, according to report
Fitch Ratings has launched an ESG “heat map” covering 29 different sub-sectors for financial institutions to provide further insight into the relevance of ESG factors to credit ratings.
The heat map shows that governance is the most influential ESG factor for both banks and non-bank financial institutions (NBFI), as found in Fitch's report ESG Factors Influencing Financial Institutions Ratings. Governance structure issues are most often relevant for financial institutions overall, but management strategy (defined as the operational implementation of strategy) issues are more common for NBFIs.
Environmental risks are mainly borne by insurers with exposure to catastrophic risks, such as reinsurers and non-life insurers operating in certain regions. Social risks for financial institutions are rare and tend to be issuer specific, with no social element relevant to the credit ratings for more than 1% of any sector.
While Customer Welfare - Fair Messaging, Privacy & Data Security, and Exposure to Social Impacts are rarely relevant to credit ratings currently, Fitch considers them potential rating drivers for the majority of sectors. The map is designed to help users understand how relevant individual ESG topics are to credit ratings for different sub-sectors across Banks, Insurance and NBFIs. A similar “heat map” is available for corporate issuers. For each ESG topic, the map shows the highest ESG score applied to a defined percentage of issuers in each sector. Interactive functionality also displays which individual entities are being impacted by the ESG topic identified within the sub-sector. For ease of use, the map comes in two forms, an infographic below and an Excel table downloadable from the link above. The Excel table offers users the ability to toggle between different relevance thresholds, which can aid understanding of whether an ESG topic is relevant specifically to an individual issuer or if it applies more generally as a trend affecting many issuers in a given sub-sector.
Fitch will update and distribute the map regularly, although the underlying relevance score for each issuer is updated whenever its rating is reviewed. Subsequent iterations of the map will provide a useful visual guide to any changes in the relative significance of ESG topics for each sector.
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