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The question isn’t if ESG factors affect credit ratings. It’s how.

Get the facts and figures surrounding ESG factors in credit ratings, direct from a category leader.

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How do ESG factors affect credit ratings?

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We assess the materiality of ESG Factors. Learn how it’s incorporated in credit ratings.

ESG credit factors are those ESG factors that can materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis. We incorporate ESG credit factors through the application of our sector-specific criteria when we think the ESG credit factors are, or may be, relevant and material to our credit ratings. ESG credit factors can be positive, neutral or negative to creditworthiness, depending on the entity being rated.

Whenever S&P Global Ratings takes a credit rating action – an upgrade, a downgrade, a CreditWatch, or an outlook change – we announce the change and the full analytical rationale to all market participants at the same time. The written rationale for the credit rating change will include the various factors we believe are affecting our forward-looking view of creditworthiness. When an ESG credit factor is driving credit quality, it’s outlined explicitly and transparently in our publicly available credit rating actions.

We believe that for credit ratings to be meaningful to market participants they should embrace and reflect ESG credit factors alongside other credit considerations, where material and relevant to creditworthiness. As the need for understanding the impact of ESG on debt issuers everywhere continues to grow, S&P Global Ratings is listening and responding by enhancing its focus on ESG, with greater visibility in our criteria and transparency in our publications.

ESG factors may play a prominent role in creditworthiness.

Credit ratings help foster the development and smooth functioning of capital markets. They are forward-looking independent analytical opinions on the capacity and willingness of an entity – such as a corporation or municipal government –to meet its financial obligations (to pay back debt and pay interest) in full and on time.

Environmental, Social and Governance (ESG) factors can – and do – influence credit quality, specifically, the capacity and willingness of borrowers to meet financial commitments. They have always played a prominent role in creditworthiness and, thus, in our credit ratings – even before the term ESG was coined more than a decade ago.

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