S&P Global no longer includes ESG scores in its debt ratings after facing scrutiny over the practice many see as politically-leaning and unnecessary.
The credit ratings agency has been monitoring and rating companies’ efforts regarding environmental, social, and corporate governance on a scale of 1-5 since 2021 but decided late last week to ditch the analysis.
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“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,” S&P said, per the Financial Times.
Republicans have lambasted the practice of rating companies’ ESG as “woke” and representative of liberal cultural influence seeping into the economic sector. A group of GOP attorneys general opened an investigation last fall into whether S&P’s ESG factors in credit ratings violated consumer protection laws.
On S&P’s website, the agency provides a description of “The ESG Advantage,” touting the increasing importance of ESG analysis and citing studies that say such programs will only increase in influence in the coming years.
“ESG analysis considers an entity’s interactions with the natural world and society, along with the quality of its governance,” the agency says. “S&P Global Ratings believes ESG analysis provides a holistic view of potential areas of environmental and social risk and opportunity for companies in rapidly evolving markets.”
The S&P adds that “some empirical data” suggests strong ties between ESG maintenance and successful investment returns. However, it concedes that the findings “are largely mixed” and mostly focus on the equity field.
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While ESG, in some form or another, has been around for years, it has only really entered the public discourse within the last few. It now holds significant weight within the modern world of capitalism, especially with the Biden administration pushing federal policies that align with its principles.
With battles over ESG taking place at both the state and federal levels, the topic is set to become a major point of contention in the lead-up to the 2024 election, especially as many eyes are firmly planted on the economy.
