As the focus on environmental, social, and governance considerations is becoming increasingly essential, and billions of dollars are invested in sustainable projects, the leading global rating agencies have incorporated these factors into their methodologies.
Due to greater sensitivity to these topics and increasing client demand, as investors now must have a clear view of ESG aspects of potential investments, credit rating agencies have found distinct methods of assessing the impact in the past several years. They have since gradually expanded the scope and scale of their analysis in this area to include a broader array of sectors and entities.
To this end, Moody’s announced earlier this week that it had included another group of industry sectors in its ESG scores, including airlines, restaurants, and gaming companies. Moody’s covers two categories of ESG scores, the IPS (issuer profile score) and CIS (credit impact scores). IPS shows the exposure of the debt issuer to the aspects of ESG, which may impact credit risk. CIS measures the effect that ESG factors have on their credit rating.
This announcement comes after another significant expansion in December last year. The agency included ESG scoring in numerous sectors such as automotive, oil and gas, utilities, technology, media, telecommunications, and financial institutions.
Moody’s introduced its ESG scores in January 2021 and has assigned ESG issuer profile and credit impact scores to over 1,700 issuers globally. The ratings initially focused on sovereigns and now include entities in various industries.
In its latest reports, Moody’s assessed that ESG factors negatively affect most entities in the gaming and restaurant sectors driven by social risks, supply chain challenges, and regulatory pressures. The agency evaluated that ESG considerations negatively impact credit for most airlines, as the industry struggles to lower CO2 emissions with increasing regulatory pressure.
