(Editor's Note: This report was updated April 26, 2022.)
Key Takeaways
- We will begin publishing ESG Credit Indicators for rated entities in U.S. public finance this spring. We expect the sector-by-sector implementation to extend into 2023.
- ESG Credit Indicators do not affect existing credit ratings. Rather, they reflect how influential ESG factors are to our credit analysis.
- We will host a live webcast on March 3 at 2:00 p.m. ET to discuss ESG Credit Indicators. Please see below for registration.
S&P Global Ratings recognizes external stakeholders' increasing desire for more information about how environmental, social, and governance (ESG) factors influence our credit rating analysis. In 2021, we underscored these efforts in various ways, including publication of the criteria "Environmental, Social, And Governance Principles In Credit Ratings," on Oct. 10, and updating certain sector-specific criteria to provide examples of how we incorporate ESG factors into our credit rating analysis. In U.S. public finance (USPF) we republished the following criteria with these examples: "U.S. State Ratings Methodology," "U.S. Local Governments General Obligation Ratings: Methodology And Assumptions," and "U.S. Public Finance Waterworks, Sanitary Sewer, And Drainage Utility Systems: Rating Methodology And Assumptions." Also, since April 2020, USPF has included dedicated ESG paragraphs in our issuer-level credit rating reports that describe in a narrative format our opinion of the influence that ESG factors have on credit rating analysis. We also aim to provide information on ESG factors when they are key drivers of our credit rating actions.
S&P Global Ratings remains committed to providing additional transparency as to how we incorporate ESG factors into our credit ratings methodology and analytics. We have already enhanced our communication to the market with implementation of ESG Credit Indicators in our Corporates and Infrastructure, Banks, and Insurance ratings practices. Our ESG Credit Indicators provide additional disclosure and transparency at the entity level and reflect our opinion of the influence that ESG factors have on our credit rating analysis. Beginning in November 2021 and through January 2022, we published 33 ESG Credit Indicator Report Cards detailing sector trends as well as application of ESG Credit Indicators for individual rated entities in those practices.
Importantly, ESG Credit Indicators do not affect our existing credit ratings. Rather, they reflect how influential ESG factors are to our credit rating analysis. We incorporate in our credit rating analysis those ESG factors that materially influence creditworthiness and for which we have sufficient visibility and certainty. ESG Credit Indicators do not affect a rating committee's decision nor change our approach to credit ratings. They are not a sustainability rating or an S&P Global Ratings ESG evaluation. Following initial implementation, ESG Credit Indicators will typically be reviewed as part of our ongoing surveillance of our credit ratings and changed by a rating committee.
USPF will supplement our existing disclosure and transparency efforts with implementation of ESG Credit Indicators, as shown in table 1. ESG Credit Indicators are intended to communicate, similar to our current narrative format, how ESG factors affect the credit rating analysis but in a supplementary format that may be more easily digestible and readily comparable. Our current narrative (descriptive) format and the ESG Credit Indicators combine to communicate how--for a specific entity--ESG factors influence our credit rating analysis.
We will begin publishing ESG Credit Indicators for USPF rated entities in spring 2022, with implementation planned for throughout 2022 and into 2023 on a sector-by-sector basis. The article "ESG Credit Indicator Definitions And Application," published Oct. 13, 2021, will be updated to include a section specific to USPF regarding how we assess ESG credit factors through our criteria and those ESG credit factors we consider most likely to influence the credit rating analysis. This update will be published prior to releasing any entity-level ESG Credit Indicators.
We disclose separate Credit Indicators for E, S, and G that 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 identified within our sector-specific criteria. The scale below has a negative skew, which reflects our view that ESG considerations often have a more negative than positive influence within our credit rating analysis when they are not considered neutral. A neutral ESG Credit Indicator does not necessarily mean that ESG factors are irrelevant, it just means that currently they do not materially influence our credit rating analysis.
Table 1
| 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 |
| Very negative | E-5 | S-5 | G-5 |
Table 2 shows an example of how ESG Credit Indicators are disclosed through an example for an entity where environmental and governance factors negatively influence our credit rating analysis. E-4 indicates that environmental factors (physical risk, in this case) have a negative influence on our credit rating analysis for that entity, while G-3 shows that governance factors (transparency and reporting, in this case) have a moderately negative influence. S-2 indicates that social factors are neutral for our credit rating analysis.
Table 2
Webcast
We will host a live webcast on March 3 at 2:00 p.m. ET to discuss ESG Credit Indicators in U.S. public finance. Please register here or go to www.spglobal.com/ratings/en/events/index.
This report does not constitute a rating action.
| Primary Credit Analyst: | Nora G Wittstruck, New York + (212) 438-8589; nora.wittstruck@spglobal.com |
| Secondary Contacts: | Eden P Perry, New York + 1 (212) 438 0613; eden.perry@spglobal.com |
| Robin L Prunty, New York + 1 (212) 438 2081; robin.prunty@spglobal.com |
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