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The ESG Pulse: 2020 Lookback
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The ESG Pulse: 2020 Lookback

Key Takeaways

  • To increase transparency, we have been explicitly referencing environmental, social, and governance (ESG) factors in our rating actions since March 30, 2020.
  • In this look-back study, we show that ESG-related rating actions--comprising rating, CreditWatch, and outlook changes--totaled over 2,300 during April-December 2020. Of these, 96% stemmed from the COVID-19 pandemic (social). Governance influenced 69 actions and environmental credit factors contributed to 24.
  • ESG-related downgrades totaled just over 1,000 over the period: 481 in structured finance, 335 in corporates and infrastructure, 156 in U.S. public finance, and 30 in sovereigns and international public finance.
  • Lists with individual entity ESG-related rating actions are attached to this report.

As a percentage of total ESG versus non-ESG-affected ratings, we see a wide variance between asset classes (see chart 1). Notably, there were only a handful of ESG-driven rating actions in 2020 in the banking and insurance sectors (1% of total actions), bearing in mind we only consider COVID-19 as ESG (health and safety) when it directly affects the business activities (see Appendix). Banks have, however, been susceptible to indirect impacts from the pandemic, namely rising credit risks and financial market volatility resulting.

Chart 1

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Chart 2

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Table 1

ESG-Related Rating Actions (April-December 2020)*
Sovereigns International public finance U.S. public finance Corporates and infrastructure Structured finance Total
Downgrade 19 11 156 335 481 1,002
CreditWatch Negative 0 1 95 46 356 498
Downward outlook revision 40 59 491 204 0 794
Upgrade/upward outlook revision 2 1 1 39 0 43
Total ESG-related rating actions 61 72 743 624 837 2,337
Social§ 56 70 705 604 837 2,272
Governance§ 10 13 32 14 0 69
Environmental§ 0 4 6 14 0 24
*Rating actions comprise rating, CreditWatch, outlook changes over April-December 2020. Since March 30, S&P Global Ratings references in its press releases when rating changes have been influenced by ESG factors. §The sum of social, governance, and environmental factors exceed total ESG rating actions because some actions were influenced by multiple factors.

Sovereigns And International Public Finance

  • ESG-related rating actions totaled 133 over April to December 2020, of which 30 were downgrades.
  • The total number of actions to which ESG factors contributed affected 27% of the total universe of sovereign ratings, and 21% of international public finance entities.
  • Of ESG-related actions, 15% were influenced by governance, while the pandemic accounted for over 80%.

Chart 3

image

Find a list of all rating actions in this sector here.

U.S. Public Finance

  • ESG related rating actions totaled 743 (over April to December 2020), of which 156 were downgrades.
  • The total number of actions to which ESG factors contributed affected 4% of the universe of U.S. public finance ratings. However, this percentage was much higher for subsectors, such as U.S. public transportation entities (34%) and higher education (31%).
  • Of all ESG-related rating actions, 705 (or 96%) were influenced by social factors stemming from the direct impact of the pandemic. Thirty-two actions were influenced by governance and six by environmental factors.

Chart 4

image

Find a list of all rating actions in this sector here.

Corporates And Infrastructure

  • ESG-related rating actions totaled 624 (over April to December 2020), of which 335 were downgrades. Roughly 50% of all actions were concentrated in the transportation, hotels, restaurants, media, gaming, and entertainment sectors, given their high sensitivity to health and safety and social distancing.
  • The total number of actions to which ESG contributed affected 16% of the total corporate and infrastructure rated universe.
  • Of all rating actions, 604 (or 96%) were influenced by social factors stemming from the pandemic. Fourteen actions were influenced by governance and 14 by environmental factors.

Chart 5

image

Find a list of all rating actions in this sector here.

Structured Finance

  • ESG-related rating actions totaled 837 (over April to December 2020), of which 481 were downgrades. Roughly 70% of all actions were concentrated in (mainly U.S.) commercial mortgage-backed securities (CMBS), with a further 24% in nontraditional structured finance asset classes (such as wholesale business, aircraft, container, railcar, timeshare, small business, and triple-net lease securitizations).
  • The total number of actions to which ESG contributed affected less than 2% of total structure finance transactions, but 15% of all CMBS transactions.
  • All ESG-related rating actions changes stemmed from direct effects of the pandemic.

Chart 6

image

Find a list of all rating actions in this sector here.

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 Feb. 8, 2021, ""COVID-19- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, International Public Finance, And Project Finance To Date,"" published Feb. 9, 2021, and ""COVID-19 Activity In Global Structured Finance As Of Dec. 11, 2020,"" published Dec. 18, 2020.

We have tagged rating actions tied directly to health and safety concerns as ESG-driven.  One of the clearest examples is airlines, for which demand has significantly dropped 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.

To classify 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-driven. 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;
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Joydeep Mukherji, New York + 1 (212) 438 7351;
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Nora G Wittstruck, New York + (212) 438-8589;
nora.wittstruck@spglobal.com
Matthew S Mitchell, CFA, Paris +33 (0)6 17 23 72 88;
matthew.mitchell@spglobal.com
Research Contributors:Sarah Limbach, Paris;
Sarah.Limbach@spglobal.com
Yogesh Balasubramanian, Mumbai;
yogesh.subramanian@spglobal.com
Secondary Contacts:Nicole Delz Lynch, New York + 1 (212) 438 7846;
nicole.lynch@spglobal.com
Kurt E Forsgren, Boston + 1 (617) 530 8308;
kurt.forsgren@spglobal.com
Emmanuel F Volland, Paris + 33 14 420 6696;
emmanuel.volland@spglobal.com
Dennis P Sugrue, London + 44 20 7176 7056;
dennis.sugrue@spglobal.com
Michael Wilkins, London + 44 20 7176 3528;
mike.wilkins@spglobal.com
Patrice Cochelin, Paris + 33144207325;
patrice.cochelin@spglobal.com

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