S&P proposes new evaluation tools to assess risk

The new assessment tools include a new Green Bond Evaluation tool that would analyse and estimate the environmental impact of projects or initiatives financed by bonds, and an environmental, social, and governance (ESG) evaluation framework and methodology for corporate issuers.
“In response to growing market interest, we believe our proposed tools will offer a unique assessment of risks associated with sustainability over the medium to long term,” said Michael Wilkins, head of environmental & climate risk research and an infrastructure ratings analyst at S&P Global Ratings.
“Investors have told us they want to develop more meaningful insights into the environmental, social, and governance characteristics of individual debt securities and corporate entities. We believe these two approaches will help to achieve that goal.”
The rating agency noted that these new tools reflect its significant and ongoing engagement with the market on environmental, social, and governance issues and green bond financings.
The papers on both frameworks are available at www.spratings.com/infrastructure and market participants are invited to submit comments through brief feedback surveys that may be accessed through www.spratings.com/greenbonds and www.spratings.com/esg.
The proposed Green Bond Evaluation methodology would consider projects that aim to mitigate climate change through greenhouse gas reduction, and adaptation projects that mitigate the impact of natural catastrophes. The proposed evaluation would consist of at least three scores—a transparency score, a governance score, and a mitigation and/or adaptation score. This approach would assess a bond financing against each category, with the resulting scores weighted and amalgamated into a final Green Bond Evaluation.
The proposed ESG evaluation framework would gauge a company’s impact on the natural and social environments it inhabits, the governance mechanisms it has in place to oversee those effects, and potential losses it may face as a result of its exposure to these risks.
The ESG Assessment will aim to rank issuers on a |five-point scale based on the degree of an issuer’s |exposure to ESG risk factors over a two- to five-year |horizon and beyond. As currently envisaged, medium-term (two to five-year) and long-term factors will receive |different weightings under the proposed methodology, with medium-term risks receiving a greater weighting |due to the more apparent nature of the factors and |their likely impact.