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When U.S. Public Finance Ratings Change, ESG Factors Are Often The Reason

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When U.S. Public Finance Ratings Change, ESG Factors Are Often The Reason


- Our criteria contain key credit factors that enable us to incorporate existing and emerging environmental, social, and governance (ESG) risks and opportunities into our ratings.

- For 2017 and 2018, we identified ESG factors as drivers for 34% of 3,315 U.S. Public Finance rating actions.

- Governance was the most dominant factor affecting credit quality (67% of rating actions), followed by social (28%) and environmental (5%).

- ESG-led rating actions were slightly more negative than positive, with 44% (or 495) being positive rating actions and 56% (or 621) negative.

- We expect ESG factors to become more explicit factors of rating actions as awareness by market participants grows and transparency and disclosure improve.

Mar. 28 2019 — S&P Global Ratings performed a two-year review of environmental, social, and governance (ESG) factors in our criteria and how they influenced, positively or negatively, the credit profile of our U.S. public finance (USPF) entities. These include local governments and states, as well as health care, housing, higher education, charter school, utility, transportation, and public power enterprises. From Jan. 1, 2017, to Dec. 31, 2018, we found that ESG factors were primary credit drivers in 34% of the total 3,315 USPF rating actions.

Governance and management issues, at 67%, were the most likely factor to lead to a rating action across sectors, although some sectors (such as public power, utilities, and transportation) were more sensitive to environmental issues as well. Social issues were a factor in about 28% of the rating actions we took. We believe this overall distribution could change as transparency and disclosure practices of rated issuers improve.

This report is part of a series covering the impact of ESG factors in S&P Global Ratings' credit ratings (see "Related Research" section for more information). It complements "Through The ESG Lens: How Environmental, Social, And Governance Factors Are Incorporated Into U.S. Public Finance Ratings" (published Oct. 10, 2018, on RatingsDirect) and our subsequent sector-specific publication "For Water Utilities, ESG Is Just Business As Usual" (published Dec. 12, 2018), both of which highlight ESG factors in our USPF criteria.

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