Environmental, social and governance factors are continuing to influence company strategy, financing and operating environments in 2021, according to a new report by Fitch Ratings Inc.

It found financial institutions will likely continue to enhance ESG due diligence and exclusionary policies to cover a broader set of ESG issues and entities, as the quality and quantity of ESG data is improved by increasing reporting requirements and harmonization of standards.

In addition, a growing interest in sustainability is sparking debate on how corporate governance frameworks should foster long-term responsible corporate behaviour. “Combined with more active investor ownership and the formalizing of sustainability targets into remuneration and sustainability-linked instruments, we expect ESG issues to increasingly influence strategic and management decisions,” the report said.

However, while the report noted many net-zero emissions pledges from companies and governments were made in 2020, none provided a clear strategy to achieving these goals. “We expect more detail in 2021,” it said. “The policy paths will provide insight into long-term economic effects.”

According to Fitch’s recent conference covering investors’ ESG concerns, the coronavirus pandemic has also had an impact on ESG factors such as labour management and short-term carbon emissions, resulting in a growing focus on social factors by companies and investors and accompanied by an increase in disclosure of social-related indicators.

And in a separate report, Fitch said the global oil sector remains the most vulnerable market to long-term ESG risks, second only to coal. While sectors such as oilfield service, refining and liquids transportation will be particularly affected, the report said gas producers and petrochemical companies are likely to fare better. In its assessment, the report cited factors such as carbon pricing and the projected decline of gasoline-fueled vehicles.

Source: Benefits Canada