Andrew Steel discusses current ESG trends

Ahead of the Sustainable Investment Forum North America taking place in New York on the 25 September 2019, we caught up with Andrew Steel, Managing Director and Global Head of Sustainable Finance at Fitch Ratings, to discuss the biggest ESG trends and themes happening right now. 

With emissions regulation causing most environmental credit issues, how can financers make successful economical investments, whilst being environmentally sustainable?

There is indeed a direct link between regulation and credit impacts, which suggests that the private sector alone cannot drive all solutions necessary to effectuate environmentally sustainable outcomes. Financiers do play an important role though and there are numerous environmental and credit-focused inputs available for investment decision-making in today’s market, with no single one being a silver bullet. Likewise, financiers have diverse environmental priorities, ranging from green bond mandates to specific impact investment themes, and varying levels of risk/return appetite. Ultimately, it’s up to financiers to determine their optimal portfolios from both an economical and environmental standpoint. The rapidly increasing volume of ESG data points available is making that easier than ever before, but also brings with it new challenges.

What are the biggest ESG trends and themes you're seeing right now?

Demand for third-party ESG data continues to increase. Yet data quality, consistency and cross comparability is a known concern. These challenges are likely to persist in the near term. Longer-term solutions will likely require quantitative and science-based measures of impact in combination with uniform standards.

ESG standards will continue to develop and gain traction. Under the EU Sustainable Finance Action Plan, great strides have been made toward an environmental taxonomy, common metrics, a green bond standard, and benchmarks. The TCFD’s ESG disclosure guidelines for corporates and financial institutions include recommended climate-related scenario analysis.

Traditional CRAs are playing an increasingly important role in the ESG space. Investors tell us that the big three are uniquely situated to be a legitimizing force in the generation and delivery of third-party data. Going forward, CRAs will either evolve traditional credit ratings to encompass more ESG considerations (via data) or offer ancillary (to credit ratings) ESG products and services.      

What will it mean to be a responsible investor in 2020 and beyond?  

No longer being able to close ones eyes to the financial impacts of ESG-related issues. Whether data privacy protection (as in the case of Facebook), extreme weather event-driven (as in the case of PG&E) or poor governance (as in the case of Volkswagen), ESG issues are increasingly financially material. Success will depend on having a clearly defined investment thesis around ESG, as well as the adequate data and competent professionals necessary to successfully execute.

What is the importance of events such as the Sustainable Investment Forum for businesses interested in investment?

Listening to investors voice their concerns and priorities can be an immensely beneficial exercise. In fact it was just this that informed the development of Fitch’s ESG Relevance Scores. Understanding how your organization fits into a larger whole, in this case, the sustainable finance ecosystem, can inform and serve every aspect of a business.  

Fitch Ratings is a Gold Sponsor at the Sustainable Investment Forum North America, which is taking place in New York on the 25 Septmeber 2019, find out more here. 

Visit Fitch Ratings website here.