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S&P Global Ratings Proposes Additional Transparency On ESG Factors As Drivers Of Credit Ratings


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S&P Global Ratings Proposes Additional Transparency On ESG Factors As Drivers Of Credit Ratings

We recognize external stakeholders' increasing desire for more information about how environmental, social, and governance (ESG) factors drive our credit ratings. We remain committed to providing transparency as to how we incorporate ESG factors into our ratings methodology and analytics. As such, we intend to enhance our existing communication to the market about the extent to which ESG factors influence our credit ratings.

Currently we include qualitative ESG insights in many of our credit rating reports. We also provide information on ESG factors when they are key drivers of our rating actions. To supplement this, we intend to introduce alpha-numerical ESG Credit Indicators, as shown in table 1, to further help explain the influence of ESG factors on our credit rating analysis. Over time, and not before September 2021, we would begin to publish ESG Credit Indicators for rated entities and, where relevant, at the transaction level.

We intend our ESG Credit Indicators to communicate, similarly to our current narrative format, how ESG factors affect credit ratings. Our proposed ESG Credit Indicators would be in a supplementary format that may be more easily digestible and readily comparable. Our current narrative (descriptive) format and the planned ESG Credit Indicators would combine to communicate how--for a specific entity, or transaction where relevant--ESG factors influence our credit rating analysis. Table 2 shows an example of how we propose to disclose our ESG Credit Indicators.

Importantly, ESG Credit Indicators will not affect our credit ratings because they do not belong to our credit rating methodologies; they are intended merely as another way to communicate the current effects of ESG factors on our credit rating analysis. The sole aim of our ESG Credit Indicators is to enhance transparency as to how we have assessed the impact of ESG factors within our credit rating analysis. In terms of process, our proposed ESG Credit Indicators would not affect a rating committee's decision nor change our approach to credit ratings. They will, however, be determined during our rating reviews, typically by a rating committee.

We expect to disclose separate Credit Indicators for E, S, and G. These will range from E-1 to E-5, S-1 to S-5, and G-1 to G-5 depending on the magnitude and direction of the influence on our credit rating analysis. ESG Credit Indicators are not intended be used as a measure of how entities are positioned in terms of ESG performance. Instead, they reflect our qualitative assessment about whether ESG factors have a neutral, positive, or negative influence on the key components of our credit rating analysis specific to each entity or transaction. The planned scale below has a negative skew, which reflects our view that ESG considerations that are not neutral to our rating analysis often have a more negative than positive influence. A neutral ESG Credit Indicator does not necessarily mean that ESG factors are irrelevant, it just means that currently they do not meaningfully influence our credit rating analysis.

Table 1

Planned Range Of ESG Credit Indicators
Influence on credit rating analysis Environmental Indicator Social Indicator Governance Indicator
Positive E-1 S-1 G-1
Neutral E-2 S-2 G-2
Moderately negative E-3 S-3 G-3
Negative E-4 S-4 G-4
Strongly negative E-5 S-5 G-5
Source: S&P Global Ratings.

Below is an example of ESG Credit Indicators for an entity where environmental and governance factors negatively influence our credit rating analysis. E-4 indicates that environmental factors (climate risk, in this case) have a negative influence on our rating analysis for that entity, while G-3 shows that governance factors (transparency, in this case) have a moderately negative influence. S-2 indicates that social factors are neutral for our rating analysis.


This report does not constitute a rating action.

Analytical Contacts:Karl Nietvelt, Paris + 33 14 420 6751;
Emmanuel F Volland, Paris + 33 14 420 6696;
Gregg Lemos-Stein, CFA, New York + 212438 1809;

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