ESG Credit Indicators
Standard & Poor’s (S&P) said that it will stop releasing new ESG credit indicators from now on and will no longer update past ESG credit indicators.
S&P believes that it is very important to provide transparent ESG scores to the market. Since 2021, S&P has provided rating entities with alphanumerical ESG credit scores. Following this statement, S&P will describe ESG credits through textual narratives.
Global ESG Ratings Development
Global sustainable consulting company ERM found that 69% of investors always use ESG ratings. In terms of rating agencies, the three institutions that investors are most familiar with are Sustainalytics (74%), MSCI (64%) and CDP (64%). For corporates, CDP and S&P are the most popular ones.
Although the market attaches great importance to ESG ratings, there are still deficiencies in the transparency and comparability of current ratings. The International Organization of Securities Commission (IOSCO), has previously said regulators need to include ESG ratings in their work.
Related Post: ERM Releases ESG Rating Agencies Report
Global ESG Ratings Regulation
Standard & Poor’s stopped publishing ESG credit indicators, which is related to the current global ESG rating regulation. At present, many countries in Europe and Asia have begun to regulate the behavior of ESG rating agencies. These regulatory measures not only involve domestic agencies, but also international agencies operating in the country.
The European Union requested in June that ESG rating services will be included in the regulatory scope under European Securities and Markets Authority (ESMA). For ESG ratings provided by third countries, rating agencies should formulate rating methods that are as stringent as those of the European Union, and accept external audit agencies designated by ESMA for evaluation.
The Monetary Authority of Singapore (MAS) requires overseas ESG rating agencies to meet industry codes of conduct when providing rating services for Singaporean financial products. Rating agencies are required to disclose rating methodologies and key performance indicators, and voluntarily employ third-party assurance and auditing.
The Securities and Exchange Board of India (SEBI) has also issued a consultation document, requiring rating agencies to meet the 15 environmental, social and governance indicators set by SEBI and provide a core rating for the third parties to issue audit opinions.