Credit Rating Agencies and ESG Ratings: Update

Today’s post is just a small update regarding developments in the sustainability/ESG rating market. We have looked at this growing field before here in Financial Regulation Matters. One of the topics of interest is the movements that the established ‘Big Two’ credit rating agencies – S&P and Moody’s – are making into the market, which experts believe will be worth more than $200 million in annual sales this year and could grow to more than $500 million in the next five years.

In the last post, dated the 24th September, we looked how Moody’s had acquired Video Eiris and Four Twenty Seven as part of their own M&A strategy, whilst S&P had published its own ESG evaluation this year. S&P’s developments come off the back of a number of mergers, with one headline merger including that of TruCost. However, S&P continued that drive over the last few days with the announcement that they were purchasing the ESG-rating arm of RobecoSAM. The terms of the deal have not been disclosed and it is thought that the deal will be concluded during the first quarter of 2020. As part of the acquisition, S&P will not only acquire the annual survey that the arm generates – the survey is considered to be one of the leading informational sources regarding companies’ corporate sustainability practices, researching over 5000 companies – but they will also acquire the service that allows companies to purchase one-off reports on their sustainability performance and how that compares to their peers. Also, as part of the deal, RobecoSAM will continue to have access to the data for use in its investment strategies and advice on its survey methodology.

Doug Peterson, the Global President and CEO of S&P, said that the deal is an ‘exciting next step in the evolution of our partnership that will allow S&P Global to create market differentiating ESG products and deliver new content and capabilities to our customers’. This is important for the agency’s objectives because, as we discussed in the previous post and as is clearly understood by the agencies, Peterson confirmed ‘we identified ESG as one of the highest growth areas’. To be able to diversify their product range and, more importantly, the impact of those products on the investment successes of their clients, will be vital for S&P as it seeks to consolidate its position alongside the equally-developing Moody’s Corporation.

However, as I warned in my book The Role of Credit Rating Agencies in Responsible Finance last year, it is very important to monitor this consistent growth. As the development of the field is a social good, there may be a tendency to push for as much involvement by all of the large financial players, in order to grow the field as much as possible. But, we must remember that the push for better and increased rates of home ownership in the US predicated one of the largest crises on record, so we must be careful not to make the same mistake again. I have argued that it is the commodification of ESG ratings that may be problematic, in terms of either those ratings being linked to capital stress tests and the equivalent (to oversimplify a very complicated issue across sectors), or with the development of green finance-related financial products. The rating agencies will, if that market continues to grow, become a key gatekeeper in that particular marketplace which will, in theory, bring a number of inherent conflicts of interest to the surface once more. Time will tell of course of how this will all develop, but the signs are there that this market will just keep growing and growing. Expect more M&A news from the agencies very soon.


Keywords – Credit rating agencies, S&P, ESG, Sustainability, @finregmatters

Comments

Post a Comment

Popular posts from this blog

Lloyds Bank and the PPI Scandal: The Premature ‘Out of the Woods’ Rhetoric

Image
Today’s very short post focuses upon the news that the Financial Conduct Authority (FCA) has recently extended the deadline to claim compensation for mis-sold ‘Payment Protection Insurance’ (PPI). Whilst a lot of financial institutions will have to prepare to offset the extended deadline, it is Lloyds that has grabbed the business headlines by apportioning an extra £350 million to offset any further claims that may be made of it – however, this comes only a week or two after the Bank posted its best performance figures in over a decade, as was previously discussed in Financial Regulation Matters . This post will therefore argue that the rhetoric being advanced recently regarding Lloyds – rhetoric like Lloyds represents ‘ a modern day success story ’ is wide of the mark and creates a false sense of security that we simply cannot afford to believe in. The ‘ robust recovery ’ was heralded far and wide upon the publication of Lloyds Bank’s financial performance for the previous fi
Read more

The Analytical Credit Rating Agency: A New Entrant That Will Further Enhance Russia’s Isolation

Image
This short post is based upon a forthcoming article by this author that examines the viability of the latest entrant into the credit rating arena, the Analytical Credit Rating Agency (ACRA). The article, which is due to be published in the European Company Law Journal (and is available here in a pre-published version), looks at the chances of the ACRA succeeding when viewed within the parameters of perception , an aspect that underpins the credit rating sector. For this post, the focus will be upon introducing the ACRA, and then on examining the effect it may have upon the wider political issues affecting the Russian Federation. The Analytical Credit Rating Agency was established in November 2015 and comprises of 27 major Russian companies and financial institutions that serve as its shareholders. The agency, which became the first rating agency to receive accreditation from the Russian Central Bank under the new N 222-FZ Law which was designed to protect investors, has a re
Read more

The Case of Purdue Pharma, the Sackler Family, and the Opioid Crisis

Image
In the first of two short posts today, we will look at the case of the billionaire Sackler Family and their remarkable effect upon American society. The family, who own Purdue Pharma amongst a list of other ventures, have this week seen a massive legal action taken against them by the State of New York who argue that the company is ‘ responsible for the opioid epidemic ’ sweeping through the United States. The attorney-general for New York has called the lawsuit the ‘ nation’s most extensive ’ with respect to the pharmaceutical industry and comes right on the heels of a $270 million suit that was settled in the State of Oklahoma on exactly the same grounds. Whilst the company and the billionaire family who own it did not admit guilt (settling parties rarely do, hence why they settle outside of court) it has potentially opened the trapdoors for litigation. It comes as no surprise then that the company is reportedly considering bankruptcy proceedings in the face of such an onsl
Read more