S&P ditches ESG debt rating scores amid criticism
In 2021, S&P Global Ratings began publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes.
Since 2021 the debt rating agency has used a scoring system of one to five to denote a company's ESG-related risk. Five is the lowest grade exposure, one is the highest.
However, last week S&P changed tack. In a statement on Friday (4 August), it said that it will offer ESG analysis in text only, not numbered scores, «effective immediately».
The rating agency said: «We have determined that the dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis.»
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S&P's reversal sets it apart from Moody's, one of its main debt rating rivals, which also rates ESG factors using a one to five scale. Debt ratings can raise or lower a company's borrowing costs, making them an influential measure.
ESG ratings specifically are facing particular criticism from Republicans in the US, who believe ESG factors are a backdoor for liberal values. Conservative state attorneys-general last year opened an investigation into S&P's use of ESG criteria.
Tom Lyon, a professor at University of Michigan's business school who has studied ESG ratings, told the FT that S&P's move was «just the latest example of a company crumpling in the face of these Republican attacks».
Their attacks have also overshadowed real concerns about ESG ratings sold by S&P and other financial firms, Lyon said. «They are not that reliable and they disagree.»
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