The credit ratings agency S&P Global has stopped giving out numerical ESG risk scores to borrowers, amid ongoing criticism of the metrics.
Previously the ratings agency had provided separate numbered scores from 0 to 100 for each element – environmental, social and governance.
However, the ratings agency told the Financial Times that it will be moving to text-only ratings, after determining that the “dedicated analytical narrative paragraphs in [its] credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis”.
The new approach differs from other ratings agencies, such as Moody’s, which continues to rate the criteria on a one to five scale, although the move comes amid rising criticism of the metric as a way for investors to accurately measure risk.
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Despite demand for more data on the environmental credentials of companies, variables in data and methodologies mean that is hard to transparently represent the environmental and social impact of businesses.
The aim of ESG scores is to screen investments based on corporate policies and their impact on the environment, but questions are increasingly being raised about their accuracy and purpose.
For example, human rights experts including members of Inclusive Development International have said that ‘responsible investment’ has landed around £10.2 billion with companies linked with the funding and equipping of crimes against humanity and genocide.
Among the critics of ESG scoring is Elon Musk, who has described the scores as a “scam” and called S&P out for giving tobacco company Philip Morris cigarettes.
