May Sustainable Investment Update

Regulatory Policy: ESG on Notice

S&P Global Ratings, one of the largest credit rating agencies in the U.S., recently announced the incorporation of ESG factors into its assessment of public issuers. State officials from Utah, West Virginia, Idaho, South Carolina, and others have publicly criticized the new ratings scale as “politically subjective” and penalizing states for the industries and demographics to which they are exposed.1 This comes on the heels of Texas’ threat to ban state investments in businesses seeking to avoid fossil fuels, and Florida’s retaliatory actions against Disney related to public education and gender identity legislation.2,3

Takeaway = It goes without saying that sentiment around ESG has become contentious in recent months, including the year-to-date ESG performance woes we have previously discussed, backlash regarding SEC regulatory proposals seeking to standardize decision-useful climate information, and Elon Musk denouncing ESG as “a scam” following his company’s removal from a popular ESG index.4 In our view, these headlines exacerbate the blurred definitions and lack of standardization within the ESG investment space.