S&P Global Ratings, one of the world’s largest credit rating agencies, has announced it will no longer publish new environment, social, and governance (ESG) credit indicators in its reports.
ESG credit indicators were introduced in 2021 to provide more transparency on how ESG factors are considered in S&P’s credit ratings. The indicators were assigned on an alphanumerical scale to help companies understand environmental, social, and governance (ESG) risks.
“Effective immediately, we are no longer publishing new ESG credit indicators in our reports or updating outstanding ESG credit indicators. 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 summarise the relevance of ESG credit factors on our rating analysis through the use of an alphanumerical scale… 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 S&P noted in a press release.
The news comes at a time when there has been a growing trend among companies to adopt ESG reporting standards. This is due to a number of factors, including increasing investor demand for ESG information, growing regulatory pressure, and a desire to improve corporate reputation.
In June 2023, the International Sustainability Standards Board (ISSB) issued its first-ever standards related to sustainability disclosures by companies. These standards were created to provide a common language for relaying climate-related risks and opportunities on a company’s prospects to investors. The UK is currently evaluating these standards and plans to adopt them in the near future.
At the end of July 2023, the European commission released its final European Sustainability Reporting Standards (ESRS). These standards underpin the bloc’s Corporate Sustainability Reporting Directive (CSRD) regulation, which looks to require over 50,000 companies to begin reporting on their sustainability practices.
While S&P Global Ratings is dropping its alphanumerical scale for ESG credit indicators, it noted that the move does not affect its ESG principles criteria, which it defines as “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.”
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