S&P Launches Forward-Looking ESG Benchmark
On April 12, 2019, S&P Global Ratings (S&P) announced the launch of “ESG Evaluation,” a new benchmark designed to evaluate environmental, social and governance (ESG) factors. The new benchmark is separate from S&P’s credit ratings and is an aggregate of two components: a quantitative data-driven assessment of a company’s current ESG performance and a qualitative review of how a company is prepared to mitigate future ESG risks and take advantage of opportunities following discussions with the company’s senior management and board of directors. S&P will assign each company it evaluates with a final score from 1 to 100 which is comparable globally across sectors. ESG Evaluation is currently available for entities in the corporate, infrastructure and selected public finance sectors, and will be rolled out to other sectors over the coming months.
ESG Evaluation helps investors looking to better understand a company’s strategy, purpose and management quality and assesses each industry’s sector-specific ESG risks and opportunities, geographic risk, management engagement and S&P’s preparedness assessment for potential disruptions due to ESG factors in the longer term. Factors analyzed by ESG Evaluation include, but are not limited to, the following:
- Environmental: Greenhouse gas emissions, waste and pollution, water use and land use.
- Social: Workforce and diversity, safety management, customer engagement and community impact.
- Governance: Structure and oversight, code and values, transparency and reporting and cyber risk and systems.
If requested, ESG Evaluation may also opine on whether or not a company’s financial disclosures are aligned with the recommendations of the Task Force on Climate-Related Financial Disclosure.
S&P’s launch of ESG Evaluation highlights the increased focus on incorporating ESG-related factors into the overall assessment of companies. In January of this year, Moody’s released and updated its methodology to assess and incorporate ESG risks, and Fitch Ratings also launched a scoring system to show how ESG factors affect the agency’s rating decisions.
For more information about ESG Evaluation, please follow this link to the S&P Global Ratings’ website.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.