S&P removes ESG scale from debt ratings.
S&P Global Drops ESG Scores from Debt Ratings Amid Controversy
S&P Global, the renowned credit ratings agency, has made the decision to remove ESG scores from its debt ratings, following criticism of the practice as politically biased and unnecessary.
Since 2021, S&P has been evaluating and rating companies’ environmental, social, and corporate governance efforts on a scale of 1-5. However, the agency recently announced that it will no longer include this analysis in its reports.
“We have determined that the dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis,” S&P stated, according to the Financial Times.
Republicans have strongly criticized the practice of rating companies’ ESG, labeling it as “woke” and indicative of liberal cultural influence infiltrating the economic sector. Last fall, a group of GOP attorneys general launched an investigation into whether S&P’s inclusion of ESG factors in credit ratings violated consumer protection laws.
On its website, S&P highlights “The ESG Advantage,” emphasizing the growing significance of ESG analysis and referencing studies that predict its increasing influence in the years to come.
“ESG analysis considers an entity’s interactions with the natural world and society, along with the quality of its governance,” the agency explains. “S&P Global Ratings believes ESG analysis provides a holistic view of potential areas of environmental and social risk and opportunity for companies in rapidly evolving markets.”
S&P acknowledges that ”some empirical data” suggests a strong correlation between ESG practices and successful investment returns. However, it admits that the findings are mostly inconclusive and primarily focused on the equity field.
While ESG has been a topic of discussion for years, it has recently gained significant attention in the public sphere, particularly with the Biden administration advocating for federal policies aligned with its principles.
With debates surrounding ESG intensifying at both the state and federal levels, the issue is expected to become a major point of contention leading up to the 2024 election, especially as the economy remains under close scrutiny.
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