According to S&P Global Ratings, environmental, social, and governance (ESG) factors now cause about a third of all rating changes for U.S. public finance debt issuers. And within the ESG bucket, governance contributes most frequently to rating changes. According to S&P, in 2017 and 2018, “Governance was the most dominant factor affecting credit quality,” accounting for a whopping 67% of ESG-related rating actions. Furthermore, most ESG-related rating actions are negative. According to Moody’s, ESG considerations often have disproportionate downside credit risk, although the impact is not always negative.
In an article published in BoardRoom Press by The Governance Institute, Nutshell Associates President Liz Sweeney explores how increased ESG scrutiny, and especially the outsized impact of the “G” raises the imperative for healthcare organizations to understand ESG’s expanding role in credit ratings and access to capital, track the metrics that credit raters and investors are following, and align presentation materials and disclosure accordingly. Boards can also adopt ESG principles to approach their role holistically, embracing the organization’s interaction with stakeholders of all kinds and their impact locally, nationally, and even globally.