Huw Jones

LONDON, (Reuters) – Credit rating agencies should improve their ability to refer to the environment, governance, and social factors in credit ratings. These ratings are used by investors to invest large amounts into sustainable funds.

According to the European Securities and Markets Authority, the assets of EU sustainable funds rose 20% to 1.5 trillion euro in the first quarter 2021. Credit rating agencies were trying to address investor demand for ESG factors.

While the EU seeks to improve this flow of money to support its economy in reaching net zero targets for growth, regulators fear that ‘greenwashing’ (or sustainable credentials) will be used to lure cash.

ESMA released a statement saying that raters have a high level of divergence in ESG disclosures. This is true even for highly sensitive entities to ESG factors.

In March 2020 the watchdog issued guidance on how investors can find out when ratesrs will disclose ESG factors in ratings in press releases.

The study examined 64,000 media releases that were published between January 2019 – December 2020. It found an increase in ESG disclosures since the implementation of the guidelines.

“But, there’s clearly room to improve: The level of ESG disclosures varies significantly between CRAs, ESG factors and especially environmental topics,” ESMA stated.