Fitch Eyes Ethics Component in Bond Ratings
Fitch is working on a plan that could result in the first structured-product ratings to incorporate so-called ESG principles.
Sources said the agency initially would focus on the environmental, social and governance policies and practices of mortgage-bond issuers, with the idea of later adapting the approach for other asset classes. The initiative, led by managing director Roelof Slump, is still in the early stages.
A formal introduction of ESG criteria likely wouldn’t happen until mid- to late 2020.
Increasing numbers of investors worldwide — particularly in Europe — are applying ESG principles in their analysis of instruments including stocks and bonds. In some cases, the investors are motivated by ethical concerns. Others believe companies that are environmentally and socially responsible will be more profitable in the long run.
Fitch will be looking at a range of issues, including how issuers treat investors and whether the underlying assets contribute to global warming. An ESG rating evaluation also might take into account how servicers behave in handling delinquent borrowers and the social implications of subprime-lending programs that target the riskiest borrowers.
Slump, a senior member of Fitch’s mortgage-bond rating group, is scheduled to appear on a panel at Information Management Network’s “ABS East” conference titled, “Green is the New Black: The Rise and Popularity of the Green Bond Movement.” The conference takes place Sept. 22-24 at the Fontainebleau Hotel in Miami Beach.