100 investors representing over US$16 trillion in AuM and six credit rating agencies have signed up to a PRI sponsored Statement advocating the incorporation of ESG risks in credit ratings.
Sparinvest has signed the Statement and Head of Responsible Investment at Sparinvest, Nichola Marshall says:
“We signed the Statement because we agree that ESG risks should be integrated into investment decision making and that applies just as much to Fixed Income as to equities.
Head of Responsible Investment
We have already seen the PRI launch a supra-company initiative focused on global stock exchanges that is designed to improve ESG disclosure amongst listed companies. So that was aimed at encouraging companies issuing equities to be more transparent about ESG risks and opportunities.”
Nichola Marshall adds that this has been very successful with 54 exchanges now on board and she notes that Sparinvest was also an early supporter on this.
“With this new initiative, (Statement on ESG in Credit Ratings) the focus is on bonds, making a direct link between ESG risk and creditworthiness. Companies and countries with better bond ratings (equating to lower risk) get to borrow money on cheaper terms. So of course, it’s beneficial to them to get good ratings. What we believe, as responsible investors, is that any analysis of the risk involved with lending money to a company should also consider the financial materiality of that company’s ESG risks and opportunities. At present, we do this through our own research, but when the ratings agencies are also asking for ESG information, companies will be under more pressure to supply it,” Nichola Marshall says.
Two year programme
The launch of the Statement on ESG in Credit Ratings marks the start of a two-year programme funded by The Rockefeller Foundation to bring investors and credit ratings agencies together in a series of “ratings forum” around the world to discuss the links between ESG and creditworthiness. The project has been initiated by the PRI with support from the UNEP Inquiry and a committee of PRI signatories, which include some of the world’s largest fixed income investors.
“Credit rating agencies are a crucial part of the puzzle for identifying systemic ESG risks in debt capital markets,” says Fiona Reynolds, managing director of the PRI.“ By signing this Statement, these organisations are affirming their commitment to more systematic and transparent consideration of sustainability and governance factors in credit ratings and analysis.”
“Investors are paying close attention to how ESG factors are considered in the credit rating process—that’s clear from the number of investors who have signed this statement,” said Michael Wilkins, managing director and head of environmental and climate risk research at S&P Global Ratings. “We’re keenly aware of this growing interest in quantifying environmental, social and governance factors, and we’re focused on closing the information gap and deepening our analysis on these issues.”
“We support PRI’s goal of developing a market dialogue to ensure the transparent consideration of ESG factors in the assessment of creditworthiness,” says Raymond McDaniel, President and Chief Executive Officer of Moody’s Corporation and adds:
“This is an increasingly important issue for market participants, and aligns with Moody’s work to incorporate evaluations of all relevant and material factors that could affect an issuer’s ability to repay its debt obligations – including assessments of environmental risks.”
Read the Statement on ESG in credit ratings here