Coronavirus rescue financing fails to fit in ESG objectives
Coronavirus rescue financing schemes were designed to alleviate short-term borrower stress but generally fail to incorporate sustainability or Environmental, Social and Governance (ESG) objectives, says Fitch Ratings in a report published today.
In Fitch’s view, this is a missed opportunity for banks to avoid potential future social backlash on Covid-19 related lending and to gain from the positive benefits of promoting ESG principles.
Rescue schemes, including those guaranteed by governments, that incorporate a larger element of subordinated debt or equity are more likely to carry borrowers through a recession and contribute to the long-term goals of sustainable finance than those that rely on a higher concentration of senior debt.
Most coronavirus rescue financing programmes are not structured for long-term debt sustainability, which means borrowers may face financing difficulties later on. Should lenders be seen to be adopting heavy-handed recovery tactics on guaranteed loans, or extending loan maturities at onerous rates, community relations could quickly sour.
This could result in widespread public disapproval of lending practices which could, over time; result in a growing number of bank ratings being influenced by social issues captured in our ESG relevance scores.