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Fitch Ratings' recent ESG survey of 182 banks worldwide (34% Western Europe / 9% North America - see methodology page 8) reveals important information about how E&S risks or perceived risks are influencing the corporate financing market.

Key takeaways include: 

• Nearly half of surveyed banks’ lending assets were subjected to the application of, or screening by, ESG policies - mostly by medium-sized banks (consolidated assets of $100 billion to $500 billion) and larger banks (consolidated assets of more than $500 billion). Generally, banks are more likely to engage in negative ESG screening than positive screening, particularly in North America. Regionally, North American and APAC regions (excluding Oceania-based groups) were generally less likely to apply ESG policies to their financing and underwriting than African, Latin American and Western European banking groups.
• Company (i.e., bank) policy and current or future regulation were the two most frequently cited reasons for incorporating ESG into underwriting processes, followed by credit/risk appetite (which may be in the form of reputational and litigation risks) and stakeholder/investor pressures (which can also trigger reputational risk). By region, North American banks are driven mostly by credit or risk appetite, as shown here:

• Corporates deemed to be high risk for human rights violations/abuses (e.g., forced human or child labor, unsafe working conditions), albeit rare (most commonly raised in the mining & metals, agricultural, or textile sectors), are the most vulnerable to outright financing prohibitions based on ESG-influenced screening processes. Otherwise, banks' ESG risk monitoring much more commonly triggers more/enhanced due diligence rather than a rejection of financing.
• Metals & mining (extractive rather than secondary products, e.g. steelmaking); chemicals & fertilizers (for environmental risk reasons); and gaming, lodging & leisure (for social/reputational risks from gambling addiction and money-laundering concerns) sector companies are most likely to encounter negative ESG screening. Least likely to be scrutinized are the technology, media & telecom; retail & consumer products; and healthcare & pharma sectors.
• Longer term, Fitch expects banks’ financing decisions - particularly for new borrowers or projects - will be increasingly influenced by ESG considerations due to social and regulatory pressures. However, Fitch believes that financing for higher ESG-risk corporates and high-profile national projects will continue to be available from local and state-controlled banks or banks with fewer ESG constraints notwithstanding the expectation of growing ESG influence.