ESG-related ratings actions accounted for three-quarters of actions on international public finance entities and a third of U.S. public finance actions, according to a report released Tuesday by S&P Global Ratings.
For corporate and infrastructure entities, ESG factors contributed to 1 in 3 rating actions, and in structured finance, ESG influenced 1 in 4 rating actions, the ratings agency said.
Health and safety issues accounted for 98% of the ESG issues involved in the ratings actions. The most affected entities were sovereign and local governments, air travel and mass transportation, media and leisure, higher education, retail, restaurants, hotels and conference centers.
S&P Global does not treat COVID-19 as an ESG factor unless it has a direct health and safety impact on an entity, according to the report.
Out of nearly 2,300 rating actions influenced by ESG factors in the last eight months, more than 900 were ratings downgrades. ESG-related rating actions fell to roughly 100 a month in October and November, down from monthly averages of 200 from July to September.
The report also references a December S&P Global publication that advocates for more balance-sheet recognition of actual and potential climate-related liabilities. That report, "ESG Pulse: Reimagining Accounting To Measure Climate Change Risks," argues that more balance-sheet recognition would give consumers of financial statements more quantitative assessments of entities' climate exposures, S&P Global said.
Current rules for financial statements do not often result in climate-related physical and transition risks showing up on balance sheets. "We believe a bolder reimagining of financial reporting could be even better so that capital markets can be driven more by sustainability considerations," the climate risk report said.