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S&P eliminates ESG scores from credit ratings (2023)
| Environmental, social, and corporate governance |
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S&P Global has decided to eliminate the numerical ESG score from its credit ratings in response to investor concerns:
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S&P Global Inc. will no longer publish ESG scores along with its credit ratings, as the company adjusts its approach in response to investor feedback. The update, which took place on Aug. 4, was triggered by expressions of confusion from investors who use S&P’s corporate credit ratings, according to a person close to the process who asked not to be identified discussing feedback that hasn’t been made public. A spokesperson for S&P referred to a statement, in which the company said the “update does not affect our ESG principles, criteria or our research and commentary on ESG-related topics, including the influence that ESG factors can have on creditworthiness.” The development comes as ratings providers try to navigate a changing landscape in which there’s little consensus on how to assess the long-term financial impact of environmental, social and governance factors on issuers. S&P had sought to address such concerns a few years back by adding an alphanumerical scale intended to enhance its text descriptions of an issuer’s ESG credentials. That decision met with enough investor resistance to merit scrapping the alphanumerical model and instead publishing only text descriptions, the person said…. S&P’s efforts to introduce an ESG scale to inform its debt ratings weren’t universally understood by investors, the person familiar with the process said. ESG scoring frameworks within credit ratings don’t work, according to Patrick Welch, chief ESG and ratings policy officer at Kroll Bond Rating Agency, a smaller rival of S&P. With a 1-to-5 scale “you’re putting one scoring system – an ESG one – inside another scoring system, which is the credit rating,” Welch said in an interview. “It raises confusion – are you talking about financial risk to the company, or also its impact” on society and the environment?[1] |
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Opponents of ESG generally supported S&P’s move:
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Rep. Andy Barr, R-Ky., tweeted on Wednesday that "ESG ratings distort the free market. Lending decisions should be made based on creditworthiness, not the political preferences of the Left and Wall Street elitists." Similarly, Sen. Mike Braun, R.-Ind., said on Wednesday on the the social media platform: "ESG is designed to tank your hard-earned retirement savings to support radical woke agendas. Fiduciaries should be concerned with maximizing return on investment before anything else." Jimmy Patronis, chief financial officer of the State of Florida, which has been a focal point of the anti-ESG movement led by Republican Gov. Ron DeSantis, tweeted on Tuesday: "There was a real risk that these debt ratings agencies were going to shove ESG down states' throats. The threat was real: adapt ESG criteria in your investment decisions or we're downgrading you. The S&P abandoning this woke-virus helps removes that threat. Huge victory." … [David] Bahnsen said the other rating agencies that were "bullied" into using ESG scores in their credit rating methodology now have a choice. "Allow S&P to be the only credit rating agency that is really rating credit, and suffer the fallout competitively, or follow suit and return to the job they signed up for," he said.[1] |
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But not all opponents feel that the decision marks progress for the ESG pushback movement. Steve Soukup, an ESG opponent and the author of The Dictatorship of Woke Capital told Ballotpedia that S&P’s ESG score, in his view, “was a disaster from the beginning and that the company’s removal of the score was a nod to reality.” He continued, saying, “The scores were never especially useful, and their removal will hardly be noticed.” He said he considered the quantitative scores to be “a meaningless gesture in the first place” and that “their removal was equally meaningless.”
See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
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