Forest of tall white aspen trees in Banff National park, Canada
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As financial institutions accelerate the adoption of sustainability into their operations, ESG considerations will become increasingly influential for issuers generally in 2021, said Fitch Ratings in a new report.

The rating agency said financial firms are increasingly incorporating sustainability into their lending and investment decisions, their corporate governance frameworks and other policies.

This, in turn, should “increase the influence of ESG on company strategy, financing and operating environments in 2021,” it said.

“The growing interest in sustainability is sparking debate on how corporate governance frameworks should foster long-term responsible corporate behaviour,” said Fitch. “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.”

Among other things, Fitch said improvements in ESG data reporting will push financial firms to expand their lending and investment policies to cover a broader set of issues, which will impact financing conditions for issuers.

“Greater policy incentives may cause ESG instruments to create a more meaningful difference in financing costs for issuers as regulations formalise the market,” it said.

Fitch also suggested that efforts to address the social effects of the Covid-19 pandemic, such as greater inequality and poverty, “may lead to new social risks for issuers and could exacerbate existing risks.”

Additionally, it said while many companies and governments made net-zero emissions pledges in 2020, it’s not clear how these goals will be met.

“We expect more detail in 2021,” Fitch said in its report. “The policy paths will provide insight into long-term economic effects.”