ESG: Credit Risk rises in 2023

Corporate and sovereign creditworthiness is likely to be affected by increased ESG risks in 2023 since greater scrutiny of climate change-related proposals is planned. Other factors, such as increasing regulatory and political pressures exacerbated by macroeconomic and geopolitical issues arising from the Russia-Ukraine conflict, as well as the ongoing effects of the pandemic are set to affect credit risk.

Credit risk is set to increase more for companies with a lower ESG rating. These firms face higher liquidity and refinancing risks, given their tendency to exhibit more questionable governance characteristics, with more capital structures and weak risk management policies, in a potentially more volatile environment.

All this comes in conjunction with the announcements of the ETA roadmap for sustainable financing and the Universal Standards of the GRI. Numerous legislative acts and initiatives give the EBA new mandates and tasks in the field of sustainable finance and ESG risks. Most of these mandates and tasks are closely related to the EBA’s broader objective of contributing to the financial system’s stability, resilience, and orderly functioning. In addition, the Global Reporting Initiative (GRI) has released updated Universal Standards, aimed at providing the highest level of transparency on impacts on the economy, environment, and people. The Universal Standards 2021 will become valid on January 1, 2023, include specific standards that companies and organizations must follow.

ESG criteria set the course for sustainable transition in the B2B world for SMEs and large corporations.

Companies and organizations that take environmental, social, and intergovernmental factors into account in their corporate strategy anticipate better results in terms of their financing, investors, the trust of their partners, the reputation of the company itself, and their compliance with specific standards. But how can they assess their progress towards sustainability and demonstrate the extent to which ESG criteria are important to their company?

To assess your company against ESG criteria and to define the most needed sustainable strategy planning activities, visit Synesgy, the global alliance of leading companies that enhance the transition to sustainability with data and insights collected through an innovative digital platform.

Source: GRIF, Global reporting organization, EBA