(Credit: Pixabay)One of the biggest credit rating agencies, S&P Global Ratings, said it will no longer publish new environment, social, and governance (ESG) credit indicators in its reports or update outstanding ESG credit indicators.
The agency added ESG credit indicators in 2021 with the intent to add transparency and help explain the influence of ESG factors on S&P’s credit rating analysis for publicly-rated entities in some sectors and asset classes. The indicators supplemented narrative paragraphs about the ESG factors on creditworthiness. S&P Global Ratings used an alphanumerical scale to evaluate ESG credit indicators.
Now, the agency is walking back on the addition of such ESG credit indicators in its reports.
“After further review, we have determined that the dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis, and these will remain integral to our reports,” the agency said.
The change of heart comes as more ESG reporting standards are coming to fruition.
In June, the International Sustainability Standards Board (ISSB) issued its first-ever standards related to sustainability disclosures by companies. The standards were created to provide a common language for relaying climate-related risks and opportunities on a company’s prospects to investors. Those standards are currently being evaluated in the U.K., which plans to adopt the sustainability disclosure reporting standards.
ESG reporting has become increasingly in demand among public companies as customers and investors alike demand more transparency. In addition, as countries, regions, and individual locales move toward climate change targets in 2030 and beyond, the role companies play in decarbonization and sustainability can improve their reputation and bottom line.
S&P Global Ratings noted that while it is doing away with the alphanumerical scale to evaluate ESG credit indicators, the move does not affect its ESG principles criteria, defining “ESG credit factors as those ESG factors that can materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis.”
The agency will continue to evaluate ESG-related topics in its research and commentary, including the influence that ESG factors can have on creditworthiness.
