Pandemic to accelerate credit relevant ESG trends: Moody’s

The coronavirus pandemic will intensify the focus of companies, investors and other stakeholders on environmental, social and governance (ESG) factors, and increase the credit-relevance of ESG risks, according to a report by Moody’s Investors Service.

“The coronavirus pandemic has vividly illustrated how a social issue like a public health shock can have severe macroeconomic and credit implications,” says Matthew Kuchtyak, AVP-Analyst at Moody’s Investors Service.

He added that entities demonstrating a stronger capability and willingness to address such ESG risks will increasingly differentiate themselves from their peers over time.

Investors are recognising that just as financial factors such as margins, leverage and liquidity defined how vulnerable debt issuers’ financial profiles were as they entered the crisis, management of ESG risks will influence how they navigate through and out of such crises, Kuchtyak added.

Scrutiny will extend beyond public health crises to other identified global risks with potential for high impact, such as climate change and social inequality.

The Moody’s report focuses on three long-term ESG trends that will receive increased attention due to the coronavirus pandemic and could have material credit implications over time.

The long-term trends include institutional preparedness for greater types of global risks, social considerations related to healthcare access and economic inequality and a shift from shareholder primacy in corporate decision-making toward a consideration of the needs of other stakeholders, including society at large.

The pandemic has highlighted variations in institutional frameworks and collective action at state, national and international levels to prepare for significant anticipated risks, as per the report.

The recent experience may result in a greater governmental, corporate and investor focus being placed on institutional preparedness for other identified global risks with potential for high impact, including climate change and other environmental issues.

“Such heightened focus on institutional preparedness will encourage governments and corporates alike to undertake additional planning for such risks and potentially increase spending to mitigate or adapt to them,” it said.

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