Governance of Sustainability Comes to the Fore Governance issues remain the most prominent and dynamic ESG Relevance Scores (ESG.RS) across all of Fitch Ratings’ asset classes. Over 2Q21, 86% of all ESG.RS score changes were in Governance factors. This reflects how, increasingly, governance of social and environmental risks and contingency planning are seen as strategic concerns for businesses. Governance risks in Financial Institutions were the top reason for increased ESG.RS in 2Q21, mostly related to ‘Governance Structure’ (GGV). Some of these changes follow changes in ratings outlooks driven by events related to gaps in risk and control functions. Government influence was also a cause for elevated ESG.RS scores in both GGV and ‘Management Strategy’ (GEX).EU Sustainable Finance Strategy to Be Disruptive The EU Commission set out its renewed Sustainable Finance Strategy at the beginning of July, which looks set to be disruptive to the wider sustainable finance market and have impacts beyond Europe. As well as its proposals on tightening rules on green bond issuance, the package points to regulation and standardisation of sustainable and transition bonds, green mortgages and ESG data providers. Regulation is likely to be highly disruptive given the lack of common standards across these areas, but over the medium term this could support the supply of higher levels of sustainable finance access. Some developments, such as the EU Sustainable Finance Disclosure Regulation and wider pressure from institutional investors, are placing pressure on investment funds, money market funds and private equity investors for wider and more transparent adoption of ESG investing principles. This could add further momentum to disclosure.Sustainability-Linked Bond Market Expands Outside of Europe The EU’s Sustainable Finance Strategy comes at a time of rapid expansion in sustainability-linked issuance. The number of sustainability-linked bond issuers in 1H2021 is already two-times that of 2020’s total. While Europe is still the largest region of activity, issuers in Asia, North America, and South America have come to the market this year, representing a wide range of countries, sectors, and key performance indicators (KPIs).