Finance & Investment

ESG Evaluation Tool Sets Holistic Benchmark for Sustainability Performance

New market offering seeks to improve transparency, disclosure and private-sector engagement with rising environmental, social and governance risk concerns.

Published 5 years ago | About a 3 minute read

Image: qimono (via Pixabay)

S&P Global Ratings today launched its ESG Evaluation — a new benchmark that provides a cross-sector, relative analysis of an entity's capacity to operate successfully in the future, grounded in how environmental, social and governance (ESG) factors could affect its stakeholders and potentially lead to a material financial impact.

Along with tools such as CSRHub’s ESGHubTM app and TruValue Labs’ ESG2.0, this new offering augments the growing arsenal for investors concerned with long-term performance. Separate from credit ratings, the ESG Evaluation is a forward-looking, qualitative and data-driven assessment of an entity's ESG performance and preparedness for future risks and opportunities that leverages company engagement and our analysts' expertise.

"The ESG Evaluation aims to deliver a forward-looking view that sets a new holistic benchmark in sustainability," said Michael Wilkins, managing director and head of sustainable finance at S&P Global Ratings. "Leveraging our global analysts' knowledge of companies and sectors, the S&P Global Ratings ESG Evaluation takes a broad view of the impact of a company's ESG exposures on its future sustainability."

Currently, the ESG Evaluation is available for entities in the corporate, infrastructure and selected public finance sectors (transportation and power) in the US and globally (subject to certain regulatory considerations). In the coming months, S&P Global Ratings says it expects to roll out Evaluations for banks, asset managers, multilateral institutions, public healthcare, water and sewer entities; and later, to the insurance, social housing and education sectors.

"The ESG Evaluation was developed in response to demand from investors and companies seeking in-depth sector and company analysis on an increasingly important metric: the durability of an entity's environmental, social and governance practices," said John Berisford, president of S&P Global Ratings. "While the fixed-income market's heightened focus on ESG has only emerged recently, ESG factors, where relevant, have long been considered in our credit rating analyses and in our published research. So, in introducing this ESG Evaluation, we are building upon a strong knowledge base of assessing the impact of ESG factors on individual entities."

The ESG Evaluation draws on insights from S&P Global Ratings' network of credit analysts, and data and information from Trucost and S&P Global Market Intelligence, as well as public bodies and non-governmental organizations such as the UN Principles for Responsible Investment and the CDP. Importantly, it also captures information gained from face-to-face meetings with an entity's senior management to produce a final ESG Evaluation score and report.

The final ESG Evaluation on an entity is an aggregate of two components: ESG Profile and Preparedness. The first assesses an entity's current ESG risk exposure, determined by a diagnostic review and macro analysis underpinned by S&P Global Ratings' ESG Risk Atlas. The second evaluates not only the ability to anticipate and adapt to emerging or long-term ESG risks, but also to harness ESG-related opportunities.

Enhancing the ESG Evaluation's analytical approach is S&P Global Ratings' newly launched ESG Risk Atlas. This online infographic charts exposure to environmental and social risk for more than 30 sectors and incorporates exposure to natural disasters, corporate governance standards, and ESG-related regulations to provide country scores. S&P Global Ratings will leverage analysis from the ESG Risk Atlas to provide a sectorial and regional foundation for its ESG Evaluation. Because industry and country risk factors are in ongoing flux, S&P Global Ratings says the Risk Atlas will be a dynamic form of commentary that it revises in line with its view of ESG risks and opportunities.