The impact of environmental and social factors on credit ratings will likely continue to evolve, according to a report issued by S&P Global Ratings on Oct. 25.
The ratings agency also said in the report that its criteria have long embedded credit risks and opportunities stemming from environmental and social factors into its analysis.
"We do not separately consider these credit risks from an entity's credit fundamentals," S&P Global Ratings said. "Increasing frequency and severity of climate-related risks could result in environmental and social factors becoming more influential in our credit analysis over time."
In the report, entitled The Evolving Impact Of Environmental And Social Factors On Credit Ratings, Nora Wittstruck, a credit analyst at S&P Global Ratings, stated "environmental and social credit factors can emerge asymmetrically across sectors, industries, geographies and entities. When we consider environmental and social factors as relevant and material to creditworthiness and sufficiently visible and certain, we incorporate them into our credit ratings analysis."
S&P Global Ratings said in a release issued in conjunction with the report that it seeks to provide a "transparent and forward-looking opinion of an entity's creditworthiness, whether our views on certain credit risks changes rapidly or gradually."
As of Sept. 30, the ratings agency noted, ESG factors drove 113 rating actions across the sectors it rates, or about 5% of total rating actions.
"In many cases, environmental and social factors may not directly lead to a rating action, but our credit rating analysis may be influenced by these credit risks or opportunities," S&P Global Ratings added. "Across all of the corporate sectors we rate globally, climate transition and physical risks accounted for important considerations in the credit analysis of more than one-quarter of our ratings."
As reported, on Aug. 4, S&P Global Ratings said it would cease to include new environmental, social and governance credit indicators in its reports or updating existing scores. At that time, the agency stated that it "remains committed to providing the market with transparency on how and when environmental, social and governance factors influence our assessment of creditworthiness."
S&P Global Ratings is a division of S&P Global.
