24 Mar 2022

Moody’s Expands ESG Scoring

As the focus on environmental, social and governance considerations is becoming increasingly important and billions of dollars are being 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, in the past several years credit rating agencies have found distinct methods of assessing the impact and 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 has 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 have an impact on credit risk. CIS measures the effect that ESG factors have on their credit rating.

This announcement comes after another major expansion in December last year when 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 a wide range of 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 have a moderately negative impact on credit for most airlines, as the sector struggles to lower CO2 emissions with increasing regulatory pressure.