Most transparent credit rating agency – Fitch Ratings (ESG Relevance Scores)

Channels: ESG

Companies: Fitch Ratings

People: Andrew Steel

Fitch Ratings launched its integrated scoring system, which shows how environmental, social and governance (ESG) factors impact individual credit rating decisions, in January. It claims it is "the only credit ratings agency (CRA) to currently offer this level of granularity or transparency about the impact of ESG on fundamental credit."

The ESG Relevance Scores, produced by Fitch's analytical teams, display both the relevance and materiality of ESG elements to the rating decision. They are sector-based and entity-specific, and currently apply to 1,500 non-financial corporate ratings. They will be followed by banks, non-bank financial institutions, insurers, sovereigns, public finance, global infrastructure and structured finance.

The agency is initially making all of its ESG Relevance Scores publicly available and will maintain and publish the scores in future as an integrated part of its credit research on particular issuers.

"We actively engaged with investors and other market participants to understand what they want to see from CRAs before devising the new relevance scores. Our focus is purely on fundamental credit analysis and so our ESG Relevance Scores are solely aimed at addressing ESG in that context," said Andrew Steel, global head of sustainable finance.

"The scores do not make value judgements on whether an entity engages in good or bad ESG practices, but draw out which E, S, and G risk elements are influencing the credit rating decision. We have taken a fully integrated approach to ESG, which will see the scores being done by our existing analytical teams rather than centrally.

"Initial results show that 22% of our current corporate ratings are being influenced by E, S or G factors. There are significant variances by market classification (developed markets vs emerging markets) as well as by geography and sector, and our analysts are looking forward to discussing the detail with both issuers and investors."