articles Ratings /ratings/en/research/articles/201119-the-esg-pulse-covid-19-vaccine-hope-as-second-wave-sets-in-11740791 content esgSubNav
Discover more about S&P Global’s offerings
Register Reset Password
In This List
COMMENTS

The ESG Pulse: COVID-19 Vaccine Hope As Second Wave Sets In
COMMENTS

Table Of Contents: S&P Global Ratings Corporate And Infrastructure Finance Criteria

COMMENTS

CreditWeek: How Festive Will The Holiday Season Be For Retailers In The U.S. And Europe?

COMMENTS

Retail Brief: European Retailers Set Out Their Stalls For The Golden Quarter

COMMENTS

Instant Insights: Key Takeaways From Our Research


The ESG Pulse: COVID-19 Vaccine Hope As Second Wave Sets In

Key Takeaways

  • From April to September, we took close to 2,100 ESG-related rating, CreditWatch, and outlook actions. Of these, 775 were downgrades, the bulk (96%) of which stemmed from the COVID-19 pandemic, while governance concerns contributed to downgrades on 23 entities and environmental factors to six.
  • Sovereigns and international public finance remain percentage-wise among the sectors most directly affected by COVID-19, with 25% and 17% of the rated universe affected. Governance often has a differentiating influence in this respect.
  • U.S. public finance entities have seen 4% of total ratings affected by ESG, albeit with a wide disparity between sectors. The most affected subsector is public transportation with 45% of entities affected, including several airport downgrades in September. In higher education, the ratings on 30% of entities have been affected by ESG factors over the six months to September.
  • For corporates and infrastructure, 15% of total ratings have been affected by ESG factors. Rating actions remain heavily concentrated in COVID-19-exposed sectors such as air travel, restaurants, retail, hotels, and leisure. Also worth noting is that some of the rating actions we took in September resulted from climate change and environmental factors.
  • In the six months, just 1% of structured finance issue ratings were influenced by ESG (solely due to COVID-19). The percentage is materially higher for some segments: 16% of commercial mortgage backed securities (CMBS) transactions were affected by revised values on underlying assets (notably U.S. malls and hotels) as well as 16% for non-traditional asset classes. The latter includes whole business, aircraft, small business, and triple-net lease securitizations, with ESG-related downgrades in September concentrated in aircraft asset-backed securities.

Chart 1

image

Chart 2

image

Chart 3

image

U.S.-based Pfizer Inc. and German partner BioNTech announced last week that the first interim analysis of the phase-3 clinical trial for their COVID-19 vaccine (with more than 40,000 participants) found it was more than 90% effective in preventing COVID-19 and there were no serious side effects observed. More positive news came when U.S. biotechnology company Moderna announced its vaccine was 94.5% effective in a phase-3 study involving 30,000 participants.

We understand that initially vaccines will be made available to vulnerable populations (which represent a disproportionate share of severe cases) and will substantially reduce the case fatality ratio. Pfizer and Moderna aim to produce 50 million and 25 million vaccine doses, respectively, by end-2020. For 2021 they announced production targets of 1.3 billion units (Pfizer) and 500 million (Moderna), noting that two doses per person are needed.

There are also competing vaccines, based on different technologies, not far behind in the development pipeline, including those in late-stage trials at Johnson & Johnson, AstraZeneca, Merck, Sanofi, GSK, as well as over 100 others in various stages of development (see "What Does Pharma's Quest For A COVID-19 Vaccine Mean For Its Credit Quality And ESG Profile?," published July 8, 2020, on RatingsDirect).

The vaccines are obviously a very positive development, not least because of the extremely high effectiveness rates. They herald, however, only the first step toward a return to social and economic normality; taking into account approval, production, and distribution hurdles, we continue to assume that effective immunization could be widely available by the middle of next year. We recognize the high degree of uncertainty associated with the pandemic and any vaccine roll-out, which will require us to update our assumptions as the situation evolves.

On the other hand, the recent surge in cases--bringing about a second wave of lockdowns in Europe and additional restrictions in many U.S. states--is likely to make things worse for certain industries before they get better. For instance, the resulting delayed recovery in air traffic volumes means we expect 2021 air traffic and revenues to be down by 40%-60% (compared to 2019), which is worse than we previously anticipated and comes on top of volumes plummeting by 65%-80% this year. We expect air traffic to match 2019 volumes only by 2024 as past positive trends in global mobility and rising middle class demand will be dampened by the global recession. Airlines may need to implement new strategies if, as we expect, business travel permanently declines as virtual meetings and working remotely are increasingly seen as effective options (see "As COVID-19 Cases Increase, Global Air Traffic Recovery Slows," published Nov. 12, 2020).

Our assumption that an effective immunization becomes widely available only by the middle of next year factors in:

  • Regulatory approvals: Further review of data will be needed. Apart from the U.S. Food and Drug Administration (FDA), other regulators will also need to approve the COVID-19 vaccine. The FDA cautioned that it will seek evidence that the vaccine reduces the number of severe cases (typically occurring among those with a weaker immune system) in order to approve. Although it is not yet known whether Pfizer's vaccine is effective in this subgroup, Moderna has said that in its trials, 11 severe cases of COVID-19 occurred only in the placebo group, with none in the vaccinated group, pointing to high efficacy in preventing severe cases.
  • Distribution and production: Distribution challenges are particularly relevant in the case of Pfizer's vaccine, which requires extremely cold storage (minus 70 degrees Celsius) throughout the supply chain. This is a disadvantage versus Moderna's vaccine, which is said to be stable for 30 days at 2-8 degrees Celsius (and up to six months at minus 20 degrees Celsius). Production ramp-up will also be a key area of focus with Pfizer and Moderna indicating a total 2021 production target that could protect close to 1 billion people.
  • Effectiveness and longevity of the vaccine: How long the vaccine will protect patients, notably the elderly and vulnerable, is a particular uncertainty for mRNA vaccines. Positively, experts assess the vaccine's mutation risk as low. Although mRNA vaccines have been in development for many years, nobody has deployed one successfully. It is based on encoding genetic instructions to create part of the virus (specifically the spiky protein at the surface of the corona virus); when the vaccine is injected, cells start to produce the protein and the immune system develops, ensuring a response ahead of getting in contact with the real virus.
  • Safety and acceptance by the public. While trials have so far shown very limited serious side-effects, some people may prefer to wait to be vaccinated until evidence has built up, while anti-vaxxers, who may simply refuse to take part, could represent a substantial percentage of the population. The mRNA technology has the advantage that it should be safer than some other vaccine technologies given that it is not produced from weakened versions of a virus.
  • Global coordination, accessibility, and affordability: To allow for a lasting and global return to normality, a global containment strategy is likely needed. Easier said than done, not least given that vaccines will need to be affordable for developing markets. Positives nonetheless are the 90%-plus effectiveness rates and ongoing improvements in therapeutics, which help to reduce fatality rates.

Sustainable finance addresses social injustices as COVID-19 raises the stakes

The road to COVID recovery is strewn with economic, social, and political uncertainties. The widening gap in social equality, exacerbated by the pandemic, is arguably the most pervasive issue governments have faced as they grapple with the aftermath of COVID-19. On the plus side, capital markets have been willing to help alleviate the symptoms by focussing debt instruments on tackling shortages in housing, education, and health care, as well as reducing unemployment. We believe the recent surge in demand for sustainable finance debt instruments, especially social bonds, could help reduce social inequalities globally if proceeds are properly targeted and their contribution is credibly quantified and made transparent to investors.

KEY TAKEAWAYS

  • In the past eight months, social injustice issues, driven by the pandemic as well as by increasing global poverty rates, have become more prevalent than ever.
  • Widening social inequality, in both developed and developing countries, has turned the spotlight on issues such as strains on global healthcare systems, the housing crisis, rising unemployment, and unequal access to education.
  • The pandemic has accelerated the issuance of sustainable investment products (including social bonds) to unprecedented levels. As of October, social bond issuance stands at US$71.9 billion, nearly four times the 2019 issuance volume. By way of example, Pfizer issued $1.25 billion in sustainability notes in March with some of the proceeds going to COVID-19 vaccine research.

Read the full article here.

Sovereigns And International Public Finance

How sovereign ratings will hold up against health and safety pressures continues to depend largely on governance strength

Table 1

Sovereign ESG-Related Rating Actions
September Apr-Sept % of total ratings affected
Downgrade 3 11
CreditWatch negative 0 0
Outlook revision 4 38
Total ESG-related rating actions 7 51 25
Data is as of Sept. 30, 2020. Source: S&P Global Ratings. ESG--Environmental, social, and governance.

Table 2

International Public Finance ESG-related rating actions
September Apr-Sept % of total ratings affected
Downgrade 2 6
CreditWatch negative 0 1
Outlook revision 12 50
Total ESG-related rating actions 14 57 17
Data is as of Sept. 30, 2020. Source: S&P Global Ratings. ESG--Environmental, social, and governance.

Our recent outlook revision to negative on Spain overshadowed other rating actions. Sovereign and related public-sector entities accounted for 11 outlook changes--more than half the ESG-related actions in September (seven for sovereigns and 14 for international public finance). Highlighting the continued weight of governance factors, our action on Spain was driven by the huge COVID-19-induced pressures on its economy, and external and public finances, similar to what many peers are experiencing, but also by unique considerations related to the country's policy effectiveness (see case study below). EU sovereign ratings otherwise have continued to hold up relatively well since the beginning of the pandemic, benefitting from our expectation of strong financial support from the EU's €750 billion Recovery Fund, among other factors. Belarus' disputed presidential election in August weighed on the rating; it now carries a negative outlook, illustrating transparency and other governance factors at play.

The effects of the pandemic continue to be felt across the rating spectrum. Some highly rated entities have experienced pressures, with the German state of Saxony and the Swedish municipality of Taby (both rated 'AAA') assigned negative outlooks. At the other end of the rating scale, the Republic of Congo (Brazzaville) fell into the 'CCC' category, where it joined Zambia, also lowered further.

Case Study: Spain Outlook Revised To Negative From Stable On Mounting Fiscal and Structural Challenges; Affirmed At 'A/A-1'

COVID-19 has hit the Spanish economy hard. In the second quarter, GDP declined 18.5% quarter over quarter, with services suffering a 36% fall in activity. International tourism arrivals were still down 75% year over year in July. For 2020, we project an 11.3% drop in GDP in 2020, followed by a recovery of 8.2% in 2021 and 4.3% in 2022. Even our relatively constructive forecasts of Spain's national accounts would mean that Spanish GDP would not return to pre-pandemic figures until 2022.

Authorities have responded to an unprecedented economic shock with unprecedented fiscal and monetary stimulus at both the national and supranational levels. The PSOE-lead minority government's inability to pass a budget since 2018 has left Spain without a coherent medium-term fiscal strategy. The PSOE-lead minority government is the first coalition government in Spain's modern history. Lacking a parliamentary majority, the government has faced a series of political challenges, complicated by its need to seek legislative support from a broad array of smaller political parties, including regional ones. For this reason, reform momentum stalled even before the outbreak.

ESG credit factors for this credit rating change:

  • Social--Health and safety
  • Governance--Strategy, execution, and monitoring

U.S. Public Finance

Health and safety risks continued to dominate USPF ESG-driven rating actions in September

Table 3

U.S. Public Finance ESG-Related Rating Actions
September Apr-Sept % of total ratings affected
Downgrade 32 116
CreditWatch negative 2 95
Outlook revision 4 486
Total ESG-related rating actions 38 697 4
o/w State & local governments 7 281 2
o/w Higher Education 6 183 30
o/w Health Care 0 51 11
o/w Utilities 0 30 2
o/w Housing 0 25 7
o/w Charter Schools 0 16 4
o/w Transportation* 25 111 45
*Excludes 187 negative outlook revisions on March 26 on almost all public transportation infrastructure issuers. ESG--Environmental, social, and governance.

USPF ESG-driven rating actions included six downgrades of privatized student housing projects and 24 downgrades to airports or airport-related entities in September. Since the start of the pandemic, we have affirmed the ratings on only five airports: Denver International, Chicago O'Hare International, Austin-Bergstrom International, Ontario International in California, and Memphis International Airport. Prior to the pandemic, these five had credit characteristics that set them apart from other airports. Although we affirmed the ratings, all five remain on negative outlook given the financial uncertainty the U.S. airport sector is facing. We believe the entire aviation industry could undergo dramatic reshaping with the rise of virtual meetings and decline of business travel, and, most notably, the industrywide transformation required to address consumer health and safety issues globally. This could lead to sluggish air travel demand that could extend for some years, even after a treatment or vaccine becomes widely available (see "As COVID-19 Cases Increase, Global Air Traffic Recovery Slows," published Nov. 12, 2020).

Some USPF issuers are facing simultaneous health and safety emergencies while struggling with the financial, economic, and public health outcomes of the pandemic. The death of George Floyd in May 2020 set off demonstrations throughout the U.S. leading to civil unrest in the likes of New York City, but also in communities such as Kenosha, Wisconsin. The widespread public discourse around ending systemic racism through policy and budget initiatives led us to revise our outlook on Minneapolis (rated 'AAA') to negative from stable. Although the rating action on Minneapolis was also captured as a health and safety social risk, it was driven by the city's role as the epicenter of protests calling for a fundamental reassessment of the role of police in U.S. cities and galvanizing the dismantling of the police department.

Case Study: Minneapolis GO Debt Outlook Revised to Negative on Elevated Credit Deterioration Risk from Concurrent Challenges, published Sept. 9, 2020

The ongoing COVID-19 pandemic has created a budget gap with little precedent in fiscal 2020, and will likely continue to pressure the city's fiscal position in 2021, absent a significant turn of events. At the same time, since the early summer death of George Floyd by Minneapolis police officers, the city has been the epicenter of an ongoing series of nationwide protests calling for a fundamental reassessment of the role of police in U.S. cities. In Minneapolis, the protests have galvanized calls for dismantling the police department, including among a veto-proof majority of the city council. While the mayor's proposed 2021 budget includes some early installments toward public safety reform, the overarching policy framework, including specifics on how money may be allocated, has yet to take definitive shape, which we believe also lends uncertainty as to the likely budgetary and credit implications, if any, of the reform efforts.

In addition to the potential for de facto expenditure mandates that could accompany demands for police reform, the city will likely be subject to liabilities from lawsuits associated with the George Floyd death, and is also reporting elevated worker compensation claims related to the subsequent period of civil unrest. Meanwhile, the economy remains fragile at best, and the recovery from the pandemic-induced national recession is likely to be a slow one. Thus, even as the city confronts the crises brought on by the pandemic and calls for historic reform of its public safety model, the emerging economic backdrop suggests a slow-moving recovery that could challenge even outyear budgetary balance, absent a proactive response from management and city leadership.

ESG credit factors for this credit rating change:

  • Health and safety

Corporates And Infrastructure

COVID-19 continues to dominate ESG-driven actions, but environmental factors have also had negative and positive effects

Table 4

Corporates And Infrastructure ESG-Related Rating Actions
September Apr-Sept % of total ratings affected
Downgrade 21 302
CreditWatch negative 0 44
Outlook revision 15 182
Total ESG-related rating actions 41 556 15
o/w Transportation 6 84 40
o/w Hotels and gaming 8 72 58
o/w Automotive 7 57 71
o/w Media and Entertainment 1 67 39
o/w Retailing 7 53 38
Data is as of Sept. 30, 2020. Source: S&P Global Ratings. ESG--Environmental, social, and governance.

Social distancing and business shutdowns amid the pandemic continued to drive rating actions during September. The 41 actions were comparable to previous months, but well down on the April-June spike in rating activity. Over 70% of September actions remain concentrated in five sectors: media, entertainment, and leisure; hotels and gaming; retail; transportation; and automotive. See our "COVID-19 Heat Map: Updated Sector Views Show Diverging Recoveries," published Sept. 29, 2020, for our analysis of these sectors' high sensitivity to long-term pandemic-induced industry disruption.

Notable downgrades in these sectors included:

  • Merlin Entertainment PLC, Town Sports International Holdings Inc., Cineworld Group PLC, and Six Flags Entertainment Corporation.
  • Nordstrom Inc. (fallen angel), whose performance continued to suffer as secular changes accelerated by the pandemic likely caused lasting damage to the company's competitive position.
  • East Japan Railway Co. and car rental company Europcar Mobility Group S.A. The transport-related aerospace sector also saw Howmet Aerospace (fallen angel) downgraded and a further downgrade of Rolls-Royce.

Positively, social factors yielded an upgrade for New Academy Holding Co. LLC. Its sales benefited from increased demand for outdoor equipment and sports equipment as consumers looked for socially distanced entertainment options and hobbies during the pandemic, leading to better refinancing prospects.

Last but not least, environmental credit factors triggered both positive and negative rating actions in September. On the one hand, we revised the outlook on Enviva Partners L.P. to positive from stable reflecting increased demand for biomass fuel, which we consider an environmental benefit as it contributes to the reduction in greenhouse gas emissions (see Box). On the other hand, we downgraded Alliance Resource Partners as the deteriorating coal market has heightened its business and refinancing risks. There were also several negative outlook revisions driven by natural conditions. This affected PG&E Corp., San Diego Gas & Electric Co., and Edison International as the unprecedented scale of wildfire activity throughout California at the beginning of the season could increase the probability that a Californian investor-owned electric utility causes a catastrophic wildfire more regularly than our prior base-case assumed.

Case Study: Nordstrom Inc. Downgraded To 'BB+' From 'BBB-' On Declining Competitive Position; Outlook Negative, Sept. 3, 2020

The COVID-19 pandemic is accelerating secular changes in retail that we believe will have lasting damaging effects on U.S.-based department store retailer Nordstrom Inc.'s competitive position. The company faces mounting challenges to its business, including depressed demand due to cyclical pressures from a weak economic environment and longer-term risks from changing consumer preferences. The company is also underpenetrated in merchandise categories that have recently outperformed while consumers are spending more time at home.

We expect COVID-19 will continue to have an outsized impact on Nordstrom as it struggles to drive in-person customer traffic to its stores, and the company could face inventory challenges because of disruptions in vendor supply chains. While most Nordstrom Rack stores are in off-mall locations, a core underpinning of the off-price value proposition is an in-person treasure hunt experience. We believe assuaging consumer health concerns will remain a challenge until a vaccine becomes widely available.

ESG credit factors for this credit rating change:

  • Health and safety

Case Study: Alliance Resource Partners L.P. Downgraded To 'B+' As Deteriorating Coal Market Heightens Business and Refinancing Risk, Sept. 14, 2020

U.S. thermal coal producer Alliance Resource Partners L.P.'s profitability is falling and its overall business risk is rising as the COVID-19-induced economic slowdown exacerbates coal's ongoing displacement by natural gas and renewables for electricity generation.

The negative outlook reflects the expectation for higher than previously forecasted leverage as well as our view that the capital markets' heightened focus on ESG concerns may make it more difficult and more expensive to refinance maturities beginning in 2024.

ESG credit factors for this credit rating change:

  • Greenhouse gas emissions

Case Study: Research Update: Enviva Partners L.P. Outlook Revised To Positive From Stable On Increased Demand For Biomass Fuel; Affirmed At 'BB-', Sept. 25, 2020

Enviva is a producer and distributor of utility-grade wood pellets for major power generators. The outlook revision reflects our view that Enviva will continue to benefit from the favorable outlook for wood pellets. The increasing demand for wood pellets is largely driven by the growing market in Asia and Europe. Under the Renewable Energy Directives in Europe and the Strategic Energy Plan in Japan, biomass power generation has been highlighted as a key strategy in meeting renewable energy targets and phasing out coal.

Enviva is gaining from this positive trend, in large part due to its advantageous geographic location in the Southeast U.S.

ESG credit factors for this credit rating change:

  • Environmental benefits
  • Greenhouse gas emissions

Financial Services

Financial services has felt very few direct* ESG effects, even though the pandemic has triggered widespread negative outlook revisions

While banks and insurers have seen very few rating actions or outlook revisions categorized as driven directly by health and safety factors, they have been susceptible to indirect negative effects from the pandemic-led economic crisis, namely rising credit risks and more volatile financial markets. As of Oct. 16, 2020, we had taken actions on 236 banks that were indirectly related to COVID-19 and the oil price shock, with about three-quarters being outlook revisions. For the insurance sector, the total was just under 10% (three-quarters of which outlook revisions).

In recent weeks, insurance standard-setters have consulted the market on how climate risk should be considered in the supervision of insurance companies. Both the European Insurance and Occupational Pensions Authority (EIOPA) and the International Association of Insurance Supervisors (IAIS) published consultation papers in October outlining tools that the national supervisors in their jurisdictions, Europe and the world, respectively, can consider integrating into their supervisory toolkits. These include qualitative questionnaires; quantitative information requests or disclosure requirements; requirements for corporate governance, risk management and internal controls to measure and manage climate risk; and stress and scenario testing of climate risks, to name a few. In addition, earlier this month the U.S. Federal Reserve Board included climate change as a risk in its financial stability report for the first time. Regulators' increased focus should help raise the bar for insurers' awareness, disclosure, and management of climate-related risks. We welcome these initiatives as a step in the right direction, but recognize it is likely to be a slow and uneven process of adoption because there is no globally consistent standard and national supervisors are at different stages of building capabilities to understand and supervise this risk.

*See Appendix for our approach to direct ESG impacts and indirect non-ESG impact of COVID-19.

Structured Finance

ESG-related rating actions in September were concentrated in Aircraft ABS, with 54 downgrades, besides seven CMBS downgrades.

Table 5

Structured Finance ESG-Related Rating Actions
September Apr-Sept % of total ratings affected
Downgrade 69 340
CreditWatch negative 0 369
Outlook revision 0 0
Total ESG-related rating actions 69 709 1
o/w ABS 0 40 1
o/w CMBS 7 448 16
o/w Linked 1 21 0.3
o/w Non-Traditional* 61 200 16
*Nontraditional structured finance asset classes include whole business, aircraft, container, railcar, timeshare, small business, and triple-net lease securitizations. Data is as of Sept. 30, 2020. ESG--Environmental, social, and governance.

ESG-related rating actions in September predominantly related to 54 downgrades of aircraft and aircraft engine asset-backed securities (ABS) transactions, which were initially placed on CreditWatch negative in March (see case study below). As most of the initial CreditWatch placements following the spread of COVID-19 have now been resolved, ESG-related rating actions may decrease. However, while global economic activity rebounded strongly in the third quarter, credit concerns loom for structured finance, given the pandemic's resurgence. While the credit performance of the majority of structured finance assets has recently stabilized or even improved, the balance of risk remains firmly on the downside. A surge in new infections, further lockdowns, and the expiry of payment holidays and job support schemes may weaken asset performance and trigger further rating actions.

Case Study: Various Actions Taken On Aircraft And Aircraft Engine ABS Transaction Ratings Previously Placed On Watch, Sept. 15, 2020

We lowered 54 ratings and affirmed 6 ratings on 23 aircraft and aircraft engine ABS transactions which were originally placed on CreditWatch with negative implications in March 2020. The initial CreditWatch placements followed the introduction of lockdown and social distancing measures which were introduced to combat the spread of COVID-19, resulting in global air passenger traffic to drop by 60%-70% in 2020 compared with 2019 (as per our August estimates.

The rating actions took into account a high overall LTV ratio; declining credit quality of the leases; declining lease collections and debt service coverage ratios (DSCR) owing to delayed or deferred rental payments by airlines amid the current challenging environment; higher exposure to wide-body or older aircraft relative to peers, which are subject to comparatively higher stresses in our rating runs; and a significant portion of collateral that are either off lease now or coming off lease in the next six to twelve months. In light of these considerations, the downgrades mainly reflect the notes' insufficient credit enhancement at their previous respective rating levels.

ESG credit factors for this credit rating change:

  • Health and safety

Case Study: Intu (SGS) Finance CMBS Notes Ratings Lowered Then Raised Following Change In Rateable Promise, Sep 11, 2020

Intu (SGS) Finance is a CMBS transaction secured by four shopping centers in the U.K. The borrower informed us that the shopping centers backing the notes suffered a spike in operational expenses and insufficient rental collection as a result of the social distancing measures implemented in the course of the COVID-19 pandemic. Consequently, proceeds were insufficient to make interest payment in full on the September 2020 payment date. Intu (SGS) Finance received consent from the noteholders in relation to some amendments to the notes. In particular, on the payment date falling in September 2020, all amounts of interest that would otherwise be payable on each series of notes will be compounded with the outstanding principal amount of the series of notes and, from that date, will form part of the outstanding principal amount of that series of notes. Such amount of interest will constitute a payment-in-kind (PIK) amount. Following the breach of the rateable promise, and in application of our "S&P Global Ratings Definitions," published Aug. 7, 2020, we have lowered our ratings on the notes to 'D (sf)'. We subsequently raised the ratings to 'B- (sf)' to reflect the credit risk of the notes based on the new promise.

ESG credit factors for this credit rating change:

  • Health and safety

Appendix

COVID-19's direct (ESG) versus indirect (non-ESG) impact

We consider the COVID-19 pandemic a social credit factor when we believe health concerns and social distancing measures have a direct impact on an entity's activities. Put differently, our data presented here exclude rating actions stemming from the recession triggered by the pandemic, and from the downturn in oil and gas that started before the COVID-19 outbreak and is tied to oversupply and a price war. For sovereign ratings, however, we see the pandemic's direct and indirect macroeconomic, fiscal, and external impacts as intertwined and feeding into each other, and therefore consider rating actions triggered by the COVID-19-induced recession as health and safety-related.

For the broader statistics of COVID-19 and oil-related downgrades, see "COVID-19 Activity In U.S. Public Finance," published Nov. 17, 2020; "COVID-19- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, International Public Finance, And Project Finance To Date," published Nov. 17, 2020, and "COVID-19 Activity In Global Structured Finance As Of Oct. 16, 2020," published Oct. 22, 2020.

We have tagged rating actions tied directly to health and safety concerns as ESG-driven:

One of the clearest examples is airlines, which have seen a significant drop in demand due to travel restrictions to stop the spread of the virus. Other examples include auto dealers, which were forced to close their doors due to social distancing requirements, resulting in lost sales for auto manufacturers. Movie theaters, airports, restaurants and leisure activities were/have been shut down due to the virus and local requirements for social distancing, resulting in a total cessation of revenue streams and limitations on large and social gatherings.

For the purposes of classifying ESG impacts, we excluded indirect rating actions tied to the recession triggered by the COVID-19 pandemic:

For example, the recession may ultimately increase the risk of nonpayments for banks or depress asset values, affecting insurers. While important, we have not flagged these as ESG. Similarly, many corporate sectors are indirectly affected, for instance many consumer products companies have had to reduce their advertising, thereby affecting many media companies. Also, job losses and loss of consumer confidence have stopped buyers from making large consumer products purchases.

Related Research

ESG in ratings industry-related commentaries

Cross-practice: 

Sovereigns and supranationals: 

International public finance: 

U.S. public finance: 

Corporates and infrastructure: 

Banks: 

Insurance: 

Structured finance: 

ESG in ratings criteria-related commentaries

Cross-practice: 

Sovereigns and local and regional governments: 

U.S. public finance: 

Corporates and infrastructure: 

Banks: 

Insurance: 

Structured finance: 

This report does not constitute a rating action.

Primary Credit Analysts:Karl Nietvelt, Paris + 33 14 420 6751;
karl.nietvelt@spglobal.com
Nicole Delz Lynch, New York + 1 (212) 438 7846;
nicole.lynch@spglobal.com
Patrice Cochelin, Paris + 33144207325;
patrice.cochelin@spglobal.com
Nora G Wittstruck, New York + (212) 438-8589;
nora.wittstruck@spglobal.com
Matthew S Mitchell, CFA, Paris + 44 20 7176 8581;
matthew.mitchell@spglobal.com
Michael Wilkins, London + 44 20 7176 3528;
mike.wilkins@spglobal.com
Kurt E Forsgren, Boston + 1 (617) 530 8308;
kurt.forsgren@spglobal.com
Secondary Contacts:Emmanuel F Volland, Paris + 33 14 420 6696;
emmanuel.volland@spglobal.com
Lawrence A Wilkinson, New York + 1 (212) 438 1882;
lawrence.wilkinson@spglobal.com
Dennis P Sugrue, London + 44 20 7176 7056;
dennis.sugrue@spglobal.com
Peter Kernan, London + 44 20 7176 3618;
peter.kernan@spglobal.com
Michael T Ferguson, CFA, CPA, New York + 1 (212) 438 7670;
michael.ferguson@spglobal.com
Jesus Palacios, Mexico City (52) 55-5081-2872;
jesus.palacios@spglobal.com
Bertrand P Jabouley, CFA, Singapore + 65 6239 6303;
bertrand.jabouley@spglobal.com
Timucin Engin, Dubai + 905306817943;
timucin.engin@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in