By Carmen Nuzzo, Head of Fixed Income, PRI and Sixtine Dubost, Analyst, Investment Practices

Market participants are still split about whether credit rating agencies (CRAs) give enough prominence to environmental, social and governance (ESG) factors in their credit rating opinions, but there is no doubt that the signposting of these has improved.

Since the launch of the ESG in credit risk and ratings initiative, the PRI has been working with fixed income investors and CRAs to enhance the transparent and systematic integration of ESG factors in credit risk analysis.

A lot has been achieved in the past five years. CRAs have published notes explaining how they incorporate ESG factors into their methodologies, while ESG-related research has grown rapidly. CRAs have built dedicated ESG teams and have expanded resources and analytical tools. Most importantly, rating commentaries now make explicit when ESG factors contribute to rating changes, partly as a result of regulatory requirements that came into force last year.

Tracking CRA progress

To help PRI signatories keep up with CRA progress, the PRI launched the CRA quarterly update in January 2020. Today, as we celebrate its one-year anniversary, we encourage you to use this tool regularly. It contains a wealth of information that can help investors to enhance their credit risk assessments and engage with CRAs. Security issuers, the media and other stakeholders can also benefit from it.

This is not a commercial platform for CRAs, rather a resource which continues to evolve based on the feedback that we receive from users. It provides:

For instance, the latest quarterly update highlighted that governance factors contributed to the latest downgrade of WeWork, that the rating of Akernus Energi improved due to environmental reasons and that social considerations contributed to the reaffirmation of Synlab’s senior secured debt rating.

CRAs have not only improved the signposting of ESG factors in their analysis (for example, through dedicated ESG sections, ESG relevance scores or credit impact scores); they are also lengthening their time horizons, as evidenced by the long-term ESG vulnerability scores or ESG evaluations, which complement credit rating opinions.

The 24 CRAs supporting our initiative are making progress but they vary in size and are at different stages of their development in making ESG factors more explicit in their methodologies, analysis and credit risk assessments.

Broadening the outreach

Since the beginning of 2020, we have extended the initiative’s outreach beyond the investor-CRA dialogue to debt issuers, ESG information providers and investment consultants.

Our country and sector-focused workshops, which convene credit analysts, CRAs and corporate representatives, create a unique platform to discuss the materiality of credit-relevant ESG factors and for credit analysts to engage with issuers. Some have been organised in collaboration with the European Leveraged Finance Association (ELFA) and with the Société Française des Analystes Financiers (SFAF), creating industry-wide synergies and joint outputs such as the ESG sector disclosure fact sheets. CRAs are playing an important role in this, from helping us to identify and contact companies, to actively contributing to the discussions. The series Bringing credit analysts and issuers together provides discussion highlights. These will expand as the workshops continue – events are planned for 2021 with companies from various sectors, including mining, food, financials, insurance and utilities.

Separately, we are increasing our outreach to ESG data and service providers. Based on a survey of fixed income investors, we have started engaging with ESG information providers to discuss their product and service coverage, data quality, the relevance of their methodologies for credit risk analysis as well as their transparency.

Through these discussions we also hope to address a point of confusion prevalent among market participants – namely that the incorporation of ESG factors in credit ratings, i.e. assessing their impact on credit risk, differs from what are commonly known as ESG ratings, which are not credit products but which profile issuers based on their ESG credentials. The acquisition by some CRA parent companies of ESG information providers may have further clouded this issue. While there are areas of overlap between the two instruments, they serve different analytical purposes and do not cover the same time horizons.

Finally, we are planning further work with investment consultants, whose approach to integrating ESG factors has historically been tailored to equity investors.

As we enter the new year, we remain focused on facilitating a dialogue among market participants, through reports, workshops, webinars and podcasts.

It is not too late to sign the Statement on ESG in credit risk and ratings – please contact [email protected] to learn more about how we can work together and make this important initiative progress further.

The ESG in Credit Risk and Ratings Initiative is funded by the Gordon and Betty Moore Foundation through the Finance Hub, which was created to advance sustainable finance.


This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.

Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.

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