CRAs and Sustainability

Guidelines on disclosure requirements applicable to credit ratings

In its 2018 Action Plan on financing sustainable growth, the European Commission invited ESMA to include environmental and sustainability considerations in its guidelines on disclosure in the area of credit ratings.

Following a consultation run in the first half of 2019, ESMA issued guidelines to improve the quality and consistency of the information that accompanies credit rating actions, in particular by:

  • providing detailed guidance as to what information credit rating agencies (CRAs) should disclose when they issue a credit rating; and
  • requiring greater transparency around whether ESG factors were a key driver of the credit rating action.

The purpose of the guidelines is to ensure a better level of consistency in terms of the critical information included in CRAs’ press releases and to allow the users of ratings to better assess where ESG factors are affecting credit rating actions.

The guidelines became applicable for the purposes of ESMA’s supervision on 30 March 2020.


Technical advice to the European Commission on sustainability considerations in the credit rating market

The European Commission’s 2018 Action Plan on financing sustainable growth invited ESMA to assess the current practice within the credit rating market concerning sustainability considerations.

ESMA communicated its advice on this matter in July 2019. The advice assessed the extent to which ESG factors are considered in both specific credit rating actions and the credit rating market in general and presented the following main findings:

  • CRAs consider environmental, social and governance (ESG) factors in their ratings, however the extent to which each factor is considered varies by asset class, according to the importance assigned to that factor by a CRA’s methodology. Therefore, while ESG considerations can be a factor, credit ratings should not be understood as providing an opinion on sustainability characteristics of an issuer or entity. 
  • Given the specific role credit ratings play in the financial system, it would not be advisable to amend the CRA Regulation to more explicitly mandate the consideration of sustainability characteristics in CRAs’ credit assessments. However, it could be useful to update the Regulation’s disclosure provisions to provide a more consistent level of transparency around how CRAs consider ESG factors in these assessments.