The International Organisation of Securities Commissions (IOSCO) has recently published the results of its initial consultation regarding the need, and the potential methods for regulating the ESG Ratings and Data Products providers that exist to meet the needs of the marketplace in its new endeavour to incorporate the concept of ESG into everything it does. The first stage of the consultation was mainly aimed at the profession, and then the direct users of the profession. Now, IOSCO is opening the consultative period to the wider public for comments on its ten recommendations . In this post, we shall examine those recommendations.   The report itself is, majoritively, an opening account of the new market. It is useful for the uninitiated. Whilst not necessarily diving into every complexity (which is perhaps not its aim), the report covers the different providers, the usage of the differing products, and also some of the major criticisms being aimed at the ESG rating industry,...

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...

Today’s short post is a short report on the news that S&P Global have today launched their new ‘ESG Scores’ into the marketplace. The move is the latest by the leading credit rating agencies to stake their claim to the ever-growing need for ESG-related information. The leading credit rating agencies, and the ‘Big Two’ of S&P and Moody’s have been making a concerted effort to increase the stake in the growing ESG-informational provider field. With S&P acquiring TruCost, and Moody’s acquiring Vigeo-Eiris, amongst other moves, the trajectory is perhaps set. I have argued elsewhere that this may result in particular outcomes for the current ‘sustainability rating industry’, and that trajectory is being proven all the time. Morningstar, earlier this year, purchased Sustainalytics outright . Moody’s acquired a majority stake in one of the oldest ‘sustainability rating agencies’ Vigeo-Eiris early last year. On top of acquiring TruCost in 2016, S&P followed that up wi...

A number of financial media outlets, including Forbes, the Wall Street Journal, and the Financial Times are all reporting that a wave of downgrades is soon to be upon us because of the effects of the Covid-19 pandemic. In this post, we will take a look at those who have been downgraded, those likely to be downgraded, and also the wider effect of these downgrades. Also, it will be worth asking why so many downgrades are on the horizon because, as one journalist recently wrote (Cezary Podkul of the WSJ), ‘ a bond rated AAA is supposed to keep that grade, even in tough times like these ’. This is the theoretical foundation of the credit rating differentiation, so why so many downgrades? On the 17 th March, Forbes reported that ExxonMobil had been downgraded by S&P, to AA from AA+. On the same day, S&P took aim at Boeing, downgrading the beleaguered aircraft manufacturer’s rating by two notches , from AA- to BBB (just two notches above ‘junk status’. There are, perhaps, o...

An article in today’s edition of the Financial Times , entitled ‘ Heavy flows into ESG funds raise questions over ratings ’, attempts to shine a light on the business of ESG rating agencies, or Sustainable rating agencies, as the process of incorporated ESG (Environment, Social, and Governance-based) considerations into investment decisions is becoming more mainstream. However, upon reflection, the sentiment of the article is a little understated so, in this post, we will assess the article closer and think more about the trajectory of this industry (particularly in relation to the much larger credit rating industry). The article begins my making valid points regarding the increasing importance of such ratings, with the discussion focusing on the fact that a growing number of investment indices are now focusing on the ratings much more as well as banks now offering better borrowing terms for entities that can demonstrate stronger ESG scores. I analysed this trend in my recent b...

Earlier this year we looked at the concept of large investors starting to take a stand with regards to the actions of those they invest in . In recent news, this trend is potentially continuing, with some of the world’s largest players now focusing on issues such as climate change and short-selling. In this short post we will review these stories and continue analysing the trend as it develops. We have looked at the concept of ESG many times, and the first story we shall assess focuses on the ‘E’ component. Yesterday the Independent ran with the story that Sir Christopher Hohn, the founder of TCI Fund Management, said that he will begin taking purposeful and potentially impactful action against firms he is invested in who do not take the issue of climate change seriously – his firm has more than £21 billion in assets under management. He has decided to focus on the issue of disclosure, stating that the firm would move to ‘vote against all directors of companies which do not p...

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 24 th 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 n...

Earlier this month, the Financial Times reported that the Big Three credit rating agencies were continuing to make their move into the ESG marketplace via a number of concerted deals . This report falls directly in line with the analysis I developed in my recent book The Role of Credit Rating Agencies in Responsible Finance and in an article last year entitled Sustainable Finance Ratings as the Latest Symptom of “Rating Addiction” . As I will be producing a chapter for a book next year, with that chapter being entitled Sustainable Rating Agencies , it seems prudent to review the market and its developments. The FT begins by noting that Moody’s has been making particular waves in the marketplace, as they purchased a majority stake in Vigeo Eiris earlier this year , and followed this with the purchasing of Four Twenty Seven . In June, S&P published its first ESG evaluation – of the company NextEra Energy. The article goes on to discuss how experts believe the market for sus...

In today’s post, we shall examine a concept that we have examined a number of times before here in Financial Regulation Matters , and that is the concept of ESG, or more accurately the integration of ‘E’nvironmental, ‘S’ocial, and ‘G’overnace concerns in relation to business. Today’s post focuses on two stories in particular, and uses them as a vehicle for examining some merging debates around this ever-growing sector. We looked over the summer at the story that Nissan had admitted to falsifying some of its emissions-related data , which naturally should lead us to think of the sector-defining Volkswagen scandal , a scandal which will leave a massive mark on one of the industry’s powerhouses. In line with those developments, Audi was fined €800 million last Tuesday for similar transgressions, ranging from 2004 to 2018 . There are, of course, a number of issues and variables that are affecting the auto industry at the moment, but for our discussion surrounding the concept of ESG,...

As part of this author’s research on the Principles for Responsible Investment , the concept of ESG consideration has been analysed in relation to its importance to development of more forward-looking and sustainable investment practices. In this post, we will look at whether Environmental, Social, and Governance’ (ESG) principles are followed in full, or whether there is still some resistance to incorporating all of the concept. There is a suggestion that only certain elements are ‘material’, but recent news suggests that it is sometimes, or even often, unwise to separate the three components. In reviewing the two particular reports generated by the PRI concerning the impact of ESG on credit analysis (the first one is available here , and the second here ), it quickly becomes apparent that, for the Credit rating agencies (CRAs), the concept of ‘G’overnance is the most material aspect. Yet, the CRAs make a point of the Volkswagen emissions scandal to demonstrate where the diff...