We looked only earlier this month at criticism being levied against the Sustainable Rating Agencies, or ESG Rating Agencies as they are sometimes known and, as more details get revealed concerning the modern-slavery story engulfing the fast fashion retailer Boohoo, the agencies are continuing to come in for criticism. In this post, the focus will be on highlighting the issues that are being revealed, and questioning the supposed role of the agencies.   The Financial Times has been asking the question recently ‘ why did so many ESG funds back Boohoo? ’, which is not surprising given that it was the FT who conducted investigations into the appalling working conditions within Leicester in the UK. Those investigations, which were unfortunately not really acted upon until the recent spike in coronavirus within the city saw it locked down , have since led to financial repercussions for Boohoo, one of the biggest benefactors of the underground textiles industry within the region – ...

Regular followers of Financial Regulation Matters , and those interested in the development of the credit rating industry, know that there has been a concerted and purposeful effort from the rating agencies to integrate the concept of ESG (Environmental, Social, and Governance) into their credit risk assessments. This began with some takeovers of ESG-date providers, and was solidified, in theory, with the major rating agencies’ connection to the UN-supported Principles for Responsible Investment initiative (PRI). However, since then there have been a number of claims raised against the rating agencies, most noticeably concerning how the rating agencies transmit how they are considering ESG-related factors, and to what extent. Research has shown that, majoritively speaking, the agencies consider the “G” element to be the most ‘material’ aspect usually, with little being confirmed regarding the ‘materiality’ of the “E” and the “S”. Yet, with the recent events across the western world be...

In an article in The Financial Times yesterday, an issue was raised concerning the potential for the increase in the issuance of ‘social bonds’ to be negatively impacted by a concept known as ‘social washing’ . The fear is that instead of utilising the investments that the bonds are intended for, issuing entities will instead use those funds for other purposes, including balancing their books in these economically uncertain times. The article ends with the statement that until standards of disclosure and transparency increase to the level of the green bond marketplace, ‘investors may have to take it on trust that the money will be put to socially useful ends’. However, this is not how the marketplace is supposed to work in the modern environment; credit risk is not supposed to be determined by mere trust, but by the assistance of excruciating levels of data-driven analysis (although, of course, one cannot be 100% certain with regards to the accuracy of risk assessments). With this in ...