On Wednesday, I blogged that S&P Global announced it will no longer issue numerical scores as ESG ratings for corporate borrowers. I certainly wasn’t the only one who wrote about this development – it was all over financial and sustainability/ESG headlines. I read many of those myself and noticed something: most of them are either wrong or very unclear about what S&P is actually doing. Some reports indicate that the firm is completely eliminating any aspect of ESG review/analysis in their corporate credit reviews. That is incorrect. According to the firm’s announcement itself:
“In 2021, S&P Global Ratings began publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes. These indicators were intended to illustrate and summarize the relevance of ESG credit factors on our rating analysis through the use of an alphanumerical scale. They supplemented the narrative paragraphs in our credit rating reports where we describe the impact of ESG credit factors on creditworthiness. 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.”
It is clear that companies aren’t off the hook as some reports seemed to imply. As a matter of fact, it could be somewhat more difficult for companies since underwriters may now pay more attention to the detailed and telling narrative ESG risk analysis than in the past. Pressure for meeting ESG performance criteria remains, so don’t take your foot off the pedal.
Photo credit: piter2121 – stock.adobe.com.