S&P Global Ratings recently announced it would no longer publish its environmental, social, and governance (ESG) “credit indicators,” though it will continue to publish narrative paragraphs that explain the impact of ESG factors on the entity’s creditworthiness. This announcement does not signify a change in S&P Global’s commitment to producing S&P Global ESG Scores for entities (separate from its credit rating services).

How the ESG Credit Indicators Worked

S&P Global’s ESG credit indicators were launched in 2021 as a part of its overall credit rating for corporate and sovereign-related issuers or transactions. An indicator was assigned to each of the E, S, and G categories and ranged from 1 to 5 (with 5 being most negative). The indicators assessed the importance of material ESG factors as they pertained to the entity’s ability to meet its financial obligations in a timely manner.

While S&P Global will no longer assign the numerical indicators, it will continue to publish narrative paragraphs that explain the impact of ESG factors on the entity’s creditworthiness. These paragraphs provide detail and transparency into the way in which ESG considerations impact the overall credit rating and were deemed to be more effective and meaningful than the 1 to 5 indicators for consumers of the firm’s rating services.

There has been no change to the methodology or criteria used by S&P Global to evaluate the risk and opportunities associated with ESG on creditworthiness. Further, this does not signify a change in S&P Global’s commitment to evaluating ESG considerations, publishing research, and producing S&P Global ESG Scores for entities as a part of a robust data package (separate from its credit rating services). The Global ESG Scores are based on an evaluation of a company’s ESG risks and opportunities and range from 0 to 100. They reflect the quality and completeness of public disclosures and encompass a range of industry-specific and financially relevant sustainability topics.

What the Other Ratings Agencies Do

S&P Global was the third major ratings agency to add an ESG evaluation component to its credit rating. It followed similar efforts by Moody’s Investors and Fitch Ratings. Moody’s introduced its ESG Issuer Profile Scores (IPS) and ESG Credit Impact Scores (CIS) in 2021, specifically for sovereigns, and added a variety of corporate sectors in 2022. An IPS is assigned for E, S, and G and conveys an issuer’s exposure to material factors that could affect credit risk. An issuer’s CIS indicates the extent to which ESG factors affect its overall rating. IPS and CIS scores range from 1 to 5, with 5 being most negative. Moody’s has not discontinued these metrics.

Fitch launched its ESG Relevance Scores in 2018 to illustrate the impact of material ESG factors on its credit rating. Fitch, too, uses a 1 to 5 scale with 5 representing high relevance of E, S, or G to the overall credit rating and 1 implying no relevance to the rating. Fitch continues to publish these scores.

The decision by S&P Global to discontinue publishing its ESG credit indicators does not change the way it incorporates material ESG risks into its credit ratings. A narrative paragraph will continue to accompany ratings and provide transparency and clarity around this aspect of analysis. All three of the major ratings agencies continue to endorse the notion that ESG considerations can have a material impact on the creditworthiness of an entity and should be incorporated into an overall credit rating. Fitch has gone one step further to highlight the financial importance of these considerations by labeling its scores as “value-neutral.”