The level of ESG disclosures provided by credit rating agencies (CRA) differs significantly across both the agencies and ESG factors, in particular environmental topics, the EU financial markets watchdog has said.
ESMA also reported that it had observed divergences in CRAs’ disclosures “even for rated entities that are highly exposed to ESG factors, relative to their sector peers”.
It said the divergences across CRAs with respect to this latter aspect were “quite striking”.
“[S]ince all CRAs have creditworthiness at the core of their approach, it is unclear why some CRAs deem ESG factors to be relevant and report them in their press releases, while others do not yet do so – especially in the case of credit ratings for issuers who are classified as highly ESG exposed according to public data or according to other CRAs rating those same issuers or their instruments,” it said.
ESMA’s analysis comes after it in March 2020 began to apply guidelines for how and when CRAs’ considerations of ESG factors are disclosed in the agencies’ press releases.
The watchdog has previously said CRAs should not be explicitly required to consider ESG factors when assessing issuers’ creditworthiness and in its report today it said this could not be mandated “due to the non-interference principle included in the CRA Regulation”.
The watchdog is separately currently carrying out a call for evidence on the market structure of ESG rating providers in the EU.
TPI publishes details of decarbonisation pathways for 10 key sectors
The Transition Pathway Initiative (TPI), which is led and used by asset owners, has published a report bringing together its decarbonisation pathways for 10 key high-emitting sectors.
The report synthesises the methodologies developed by TPI over the past five years, including its recent work on sectoral pathways aligned with the Paris Agreement’s stretch goal of capping warming to 1.5°C.
The latter are new following the publication of the International Energy Agency’s (IEA) net zero by 2050 scenario.
The pathways are used by investors and investor networks like the Climate Action 100+ to assess how far companies in their portfolios are aligned with the goals of the Paris Agreement.
“In order to allow investors to see whether a company’s emission reduction plans align with the goals of the Paris Agreement, TPI has translated IEA models into decarbonisation pathways for each sector. This report explains our methodology in an accessible way,” said Simon Dietz, research lead for TPI at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
“We hope this report catalyses the real economy transition plans that we urgently need to avoid the most catastrophic effects of global warming. It is now time to turn commitment into action.”
The sectors covered in the report are electricity, oil & gas, aluminium, cement, diversified mining, paper, steel, autos, aviation, and shipping.
FRC on ISSB prototypes
The International Sustainability Standards Board (ISSB) would do well to explore the concept of “dynamic materiality” as set out in a September 2020 joint statement from voluntary sustainability reporting standard setters to work together, the UK’s Financial Reporting Council (FRC) has said.
The FRC made the comment in feedback on disclosure prototypes developed by the ISSB Technical Readiness Working Group.
It also said that when developing principles for sustainability standards, it believed that sufficient emphasis needed to be given to reporting on the ‘impact on society and enviroment’ “to the extent that they could affect the entities abiliity to create value or generate cash flows or otherwise influence investment decisions”.
The ISSB is aiming to publish proposals for standards by the end of the first quarter this year.
Amundi plans more oceans work
Amundi has said it will double the number of companies it engages with on the subject of oceans’ health based on a framework it helped develop.
The asset manager launched a dedicated engagement stream on oceans in 2021 covering nine companies in four sectors – aquaculture, shipping cruise lines, hotels, and energy.
The ‘Ocean Framework’ from non-profit organisation La Fondation de la Mer provided the basis for Amundi’s engagement methodology on the theme of oceans.
Yesterday Amundi said it would double the number of companies it engages with “to encourage them to assess and reduce their adverse impacts on the ocean with dedicated performance indicators”.
“Amundi will also seek to allocate more capital towards ocean protection.”
Accor, one of the nine companies Amundi has been engaging with, has now adopted the Ocean Framework as part of a dedicated ocean strategy and reporting policy.