Why ratings are back in focus as interest rates rise

Lotta Marchal, EthiFinance – Head of Business Development, Credit and ESG Ratings

Thomas Dilasser, EthiFinance – Head of Corporate and Project Finance Ratings

There is no escaping it: Europe’s low-interest-rate era, which ended in mid-2022, is now firmly behind us. Higher rates have raised financing costs and made lenders and investors more selective. Companies—especially mid-sized businesses—must show they can adapt to tougher conditions and secure the funding to strengthen their resilience. Against this backdrop, credit and ESG ratings can provide a valuable advantage.

THE INVESTMENT IMPERATIVE, DESPITE HIGHER FINANCING COSTS

Tighter financing conditions are never welcome. This time, moreover, they come just as companies’ investment needs are particularly acute. To remain competitive in an innovation race shaped, not least, by the rapid and far-reaching disruption of AI, European companies must accelerate their transformation—and that inevitably comes at a cost.

They must also commit decisively to the environmental transition, if only to keep the associated financial risks in check. Biodiversity risk modelling by EthiFinance’s research teams offers a concrete illustration of how financially material these environmental risks can be[1] : water emerges as the natural capital component generating the greatest risk exposure, with a 33% increase in the average probability of default for CAC 40 companies.

Investment is crucial both to manage these risks and to seize the market opportunities created by the transition. Yet the financial effort required is substantial: across the European economy, the European Commission puts the additional investment needed at around €620 billion a year above the historical trend—equivalent to roughly 3.7% of EU GDP.

For small and medium-sized businesses, this is a steep hill to climb. While large international companies still enjoy a degree of market goodwill, mid-sized companies face longer, more complex and more selective fundraising processes.

RATINGS: A NATURAL ALLY FOR CORPORATE TREASURERS

In this more selective financing environment, credit and ESG ratings can be a useful tool for finance teams:

First, credit ratings. They have become essential in public capital markets, where large companies predominate. Mid-sized businesses rely more heavily on private markets, notably through instruments such as private placements.

In both private and public markets, a credit rating is the outcome of a structured exercise in transparency, providing investors with an independent benchmark for assessing an issuer’s risk profile. It can facilitate dialogue with funding providers and broaden access to capital, including for non-investment-grade issuers. Where credit quality warrants it, a rating can also help secure better financing terms. These benefits must, of course, be weighed against a rating fee appropriate for mid-sized companies.

Then come ESG ratings. They can complement a credit rating when raising debt or be used on a stand-alone basis, particularly when raising equity. In both cases, financial market participants value them for their role in qualifying funds for the “Article 8” or “Article 9” categories under the Sustainable Finance Disclosure Regulation (SFDR).

ESG ratings are also playing a growing role in bank lending. Supervisors—including the European Banking Authority (EBA) and the European Central Bank (ECB)—now treat climate and environmental risks as financial risks that must be managed alongside credit, market, liquidity and operational risks. Strong social and governance performance is also viewed as a key driver of medium-term resilience.

Today’s environment is bringing the value of credit and ESG ratings back into focus. As strategic assets, they can attract investors, reassure lenders and broaden access to capital—and, for issuers with sufficiently strong risk profiles, help secure better financing terms.

[1] Biodiversity Stress Test: Assessing the Resilience of the CAC 40 to the Ecological Crisis

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About the authors :

Lotta Marchal, CFA, is Senior Sales Director at EthiFinance Group, overseeing the development of the Group’s Credit Rating and ESG Rating businesses in France. She works closely with corporates supporting their financing, rating and sustainable finance strategies. Before joining EthiFinance, she built extensive experience in Corporate Banking within leading international financial institutions. Lotta holds a Master’s degree from Paris Dauphine University and is a CFA Charterholder.

Thomas Dilasser holds Master’s degrees in Finance and in Accounting and Management. He began his career as an auditor at PwC before joining EthiFinance Group and its credit rating agency. In 2024, he was appointed Chief Rating Officer for Corporates & Project Finance. His expertise in credit analysis and credit ratings has also led him to contribute to and be quoted in several articles published by Option Finance and DAF Magazine.

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