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    US Senator Calls on Ratings Firms to Provide Information on ESG Scores

    September 21, 2022

    In the recent letters to 12 ESG ratings firms, the U.S. Senator Pat Toomey, who is a ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, called on the firms to provide information regarding their practices on calculating environmental, social, and governance (ESG) scores of companies. The letters were sent to MSCI, ISS, Bloomberg, Sustainalytics, Moody’s, Carbon Disclosure Project, S&P Global, FTSE Russell, RepRisk, FactSet, Refinitiv, and Arabesque S-Ray.

    Senator Pat Toomey requested the ESG ratings firms to provide information about practices related to assigning ESG ratings to companies. The U.S. Senator notes that the information collected by ESG ratings firms often goes far beyond the extensive public disclosures that companies are required to make under federal securities laws. The existing law requires that companies describe their business, properties, legal proceedings, and risk factors. Companies must also provide management’s discussion and analysis of the firm’s financial condition, results of operations, liquidity, and capital resources. Each of these disclosure areas are legally required to include any material climate change information so that the disclosures are not misleading under the circumstances. In determining a company’s ESG rating, however, many ESG ratings firms consider information that is not material or financially relevant under federal securities laws.

    The Senator requested the firms to share any non-proprietary methodologies used to assign ESG ratings, including the specific E, S, and G factors measured; how those factors are weighed; how the firms determine the scope of industry sectors, including whether they employ analysts with sector-specific expertise; and reports intended to capture controversies faced by a company, such as pending litigation, negative press coverage, or shareholder resolutions. The firms were expected to share this information by September 28, 2022. Firms were also expected to answer questions on whether companies have an opportunity to submit clarifications to the ratings for the benefit of investors; how the firms determine credibility of data sources used; how the firms approach ratings with respect to hot button political issues, including abortion and gun control; and how the firms deal with potential conflicts of interest, in cases where the firms also issue proxy vote recommendations or offer advisory services. The firms are expected to provide written answers to these questions no later than October 05, 2022.

     

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    Keywords: Americas, US, Banking, ESG, Climate Change Risk, Disclosures, ESG Ratings, ESG Scores, US Senate Banking Committee


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