S&P Global Ratings has announced that it will end the publication of “environmental, social, and governance” (ESG) scores, marking a major victory for states like Texas that have resisted such initiatives.
“… [E]ffective immediately, we are no longer publishing new ESG credit indicators in our reports or updating outstanding ESG credit indicators,” the organization explained.
S&P, which began the practice in 2021, claimed, “These indicators were intended to illustrate and summarize the relevance of ESG credit factors on our rating analysis.”
However, while the rating group will stop publishing certain indicators, it added, “… [W]e 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, and these will remain integral to our reports.”
S&P Global Ratings describes itself as “the world’s leading provider of independent credit risk research.”
“… [W]e offer a unique combination of global coverage and local insight,” the organization continued. “Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.”
As an issuer of credit ratings, the institution’s move away from relying on controversial ESG ratings could reduce reliance upon the ideological framework within the marketplace.
The State of Texas saw the S&P’s action as cause for celebration, suggesting that it marks a step toward eliminating politicized considerations in credit rating decisions.
First Assistant Attorney General Brent Webster said in a statement provided to The Dallas Express, “In recent years, the financial industry has been pressured to use their enormous power over consumers to advance fringe causes that Americans do not agree with.
“Texas is proud of our litigation and investigations that have obviously caused companies to think twice about becoming an arm for political activism, and we will continue to monitor companies closely.”
A press release by the Office of the Attorney General of Texas explained, “In a victory for the State of Texas and consumers nationwide affected by financial companies prioritizing ideological ‘environmental, social, and corporate governance’ (‘ESG’) considerations over purely financial factors, S&P Global Ratings announced it would no longer publish new ESG credit indicators or update outstanding ESG credit indicators.”
“This follows numerous efforts by Texas’s Office of the Attorney General (“OAG”) to combat the ESG investment doctrine that aims to weaponize the financial sector for ideological goals related to environmental extremism, racial and gender identity politics, and more,” the release continued.
Seeking to “address the trend of financial companies behaving as an extension of politicians and activists by adopting ESG practices,” the now-impeached AG Ken Paxton “launched a lawsuit against the Biden Administration’s illegal attempt to expose workers’ retirement accounts to ESG investing, putting their financial futures at risk by allowing asset managers to consider non-financial factors when investing client funds.”
“The OAG has also launched aggressive defenses of Texas laws that forbid conducting State business with financial companies that discriminate against firearms businesses and the oil and gas industry,” the release added.
In September 2022, Paxton joined a multi-state investigation into S&P Global specifically for “potential violations of consumer protection … laws.”
“Too many consumers and investors have been hurt by the woke ESG movement’s obsession with radical social change and willingness to ignore the law,” Paxton said at the time. “We’re investigating S&P Global to find out if they’ve engaged in the types of destructive, illegal business practices that are so pervasive in the ESG movement. If so, they will have to answer for their actions.”
The decision by S&P Global to now stop publishing ESG scores has been viewed by some as a direct result of pressure from states like Texas rather than a true stand against the practice.
Andrew Poreda, an ESG researcher at Sage Advisory, suggested, “It certainly looks like this is politically motivated. … If S&P actually thought ESG scores weren’t useful, they would have ceased their other ESG ratings offerings,” per Barron.
Additionally, some groups contend that ESG ratings are vital for improving how businesses operate.
KPMG, an international financial services organization, said, “ESG ratings have become important when investors analyse their potential future investments, and therefore it should not be neglected by companies.”
“Many investors prefer to invest in companies with a good rating, as they often have easier access to capital, better brand reputation, easier to attract talent and have better control over their risks,” the company claimed.