Credit agency S&P Global Ratings will cease to include new environmental, social and governance credit indicators in its reports or updating existing scores, effective immediately.
S&P Global Ratings said in a news release Aug. 4 that while it “remains committed to providing the market with transparency on how and when environmental, social and governance factors influence our assessment of creditworthiness,” the firm will no longer publish new ESG credit indicators in its reports or update outstanding ESG credit indicators.
S&P defines ESG credit factors as "those ESG factors that can materially influence the creditworthiness of a rated entity or issue" that it has "sufficient visibility and certainty" to include in its credit rating analysis.
The agency said in the release that it had commenced publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes in 2021. "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," the agency added. "They supplemented the narrative paragraphs in our credit rating reports where we describe the impact of ESG credit factors on creditworthiness."
But after further review, S&P Global said, it 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."
S&P Global added that this policy will not affect its ESG principles criteria or its research and commentary on ESG-related topics, including the influence that ESG factors can have on creditworthiness.
Richard Hunter, chief credit officer at another major credit agency, Fitch Ratings, stated by email that: "Fitch believes that there are profound limits to what text disclosures can do for investors monitoring an entire portfolio of hundreds of serviced issuers and bonds.
"We have found that having a numeric score that crisply identifies individual issuers with actual rating changes that can be classified as driven by a factor which has a direct relevance for ESG as well, or where those factors are heavily discussed at the committee, without rising yet to an actual rating change, has been highly valued by users."
Credit agency Moody's said in a statement that it "incorporates all risks, including those related to ESG, into its credit ratings when they are material, and also publishes ESG scores on a 1 to 5 scale."