Rating Agencies Focus on ESG Concerns

Last week, Fitch Ratings announced the launch of new ESG ratings system, which is intended to use a "clear methodolog[y]," of a "full assessment of ESG performance" that "allow[s] for detailed comparability."  This announcement builds on earlier work Fitch has performed over the past couple of years, including the "2019 launch of Fitch Ratings ESG Relevance Scores, which show the impact of ESG factors on credit rating decisions."  Fitch is not alone in measuring ESG factors; both of the other major ratings agencies--Moody's and S&P--have also launched products focusing on ESG issues (https://esg.moodys.io/; https://www.spglobal.com/esg/scores/).

This focus on ESG concerns by the major ratings agencies highlights the increasing salience of ESG to investors and to the public at large, not just government regulators and activists.  Indeed, it is the increasing focus on ESG concerns by commercial entities that has likely prompted at least some of the current regulatory scrutiny by the SEC and other government agencies. 

When contemplating a response to disclosure requirements proposed by government regulators, companies should also bear in mind what information the market itself is demanding, and take that into account.  This new focus on ESG concerns does not appear to be dissipating in the near future.