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Senate Banking Committee’s ranking member goes after ESG ratings services (2022)
| Environmental, social, and corporate governance |
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| • What is ESG? • Enacted ESG legislation • Arguments for and against ESG • Opposition to ESG • Federal ESG rules • ESG legislation tracker • Economy and Society: Ballotpedia's weekly ESG newsletter |
On September 20, Senator Pat Toomey (R), the Banking Committee’s Ranking Member, sent a letter to 12 ESG ratings firms, questioning what he described as their “lack of transparency, conflicts of interest, and use of biased sources.” The letter to Sustainalytics read as follows:
“I am writing to request information about Sustainalytics’s practices related to assigning environmental, social, and governance (ESG) ratings to companies. My understanding is that these ratings are intended to help investors determine whether a company may be seen favorably from an ESG perspective.
"The industry of ESG investing and related services has grown tremendously in recent years. According to Bloomberg, global ESG assets are projected to reach $50 trillion by 2025, accounting for one-third of total projected assets under management globally. ESG ratings firms, such as Sustainalytics, play a key role in this activity by evaluating the degree to which more than 10,000 companies meet certain qualitative standards. As a result, they have the ability to influence capital flows to many companies.
"Notably, ESG ratings take into consideration information about companies that go beyond the extensive public disclosures firms are required to make under federal securities laws. For example, existing law requires that companies describe their business, properties, legal proceedings, and risk factors. Companies must also provide management’s discussion and analysis of the firm’s financial condition, results of operations, liquidity, and capital resources. Each of these disclosure areas are legally required to include any material climate change information so that the disclosures are not misleading under the circumstances. In determining a company’s ESG rating, however, many ESG ratings firms consider information that is not material or financially relevant under federal securities laws.”
Toomey proceeded to ask for documents from each company on proprietary methodologies and for answers to questions regarding compliance burdens their ratings might create for rated companies, veracity of the data they use, and any potential conflicts of interest.
Toomey gave the firms until September 28 to respond to his request.
See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
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