S&P Global, one of the largest independent credit rating firms in the world, has dropped ESG scores from its debt ratings.
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. 4th, 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.
ESG indicators were introduced by S&P Global Ratings in 2021 following similar moves by Moody’s Investors Service and Fitch Ratings. They were meant to be easy-to-visualize scores that conveyed the relevance of environmental, social and governance factors in a credit rating analysis.
In a report published last September, the European Central Bank found that most ratings firms have made progress, but they still do a poor job of explaining their climate calculations, including transition and physical risk.
S&P later clarified that their ESG credit indicators were not meant to be sustainability ratings or independent assessments of a company's ESG performance. Instead, they were designed to highlight ESG credit factors on their rating analysis.
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