S&P Global Inc. [SPGI:US] has announced a shift in its strategy regarding the integration of Environmental, Social, and Governance (ESG) considerations into its credit ratings reports, as reported by Financial Times on August 8. The decision, communicated to clients in the previous week, signifies that S&P Global’s credit ratings division will cease the inclusion of ESG credit indicators in new credit ratings reports. These alphanumeric indicators were introduced in 2021 to offer a succinct representation of ESG credit factors alongside traditional narrative descriptions, aiming to emphasize the influence of ESG aspects on creditworthiness. However, S&P Global has concluded that the detailed analytical narrative paragraphs within credit rating reports are the most effective means of conveying information regarding ESG credit factors. It clarified that the alteration does not impact its broader commitment to ESG principles, criteria, or its exploration of ESG-related topics.

The decision arrives after expressions of investor perplexity and feedback, with some investors reportedly finding the integration of ESG scores alongside credit ratings less intuitive. This modification does not deviate from S&P Global’s commitment to examining the nexus between ESG factors and creditworthiness. It transpired on August 4 and was prompted by investor concerns that the dual presentation of ESG scores and credit ratings was not achieving the desired clarity. While this may be interpreted by some that ESG ratings are on their way out, we, Seneca ESG, believe it is actually a reflection of our view that ESG ratings are by nature, highly subjective and prone to bias. ESG ratings are best designed on a case-by-case basis by the analysts that are conducting the analyses, and taking into consideration the nuances of the situation. This underscores the importance of expert judgment and a nuanced approach in evaluating the complex interplay of environmental, social, and governance factors within the context of creditworthiness assessments.

Sources:

https://www.ft.com/content/9426937e-28d3-4846-8440-c30583524d4c

https://www.bloomberg.com/news/articles/2023-08-08/s-p-drops-esg-scores-from-debt-ratings-after-investor-confusion

https://www.responsible-investor.com/esg-round-up-sp-global-ratings-drops-esg-indicators-from-credit-rating-reports/