S & P Ratings – Proposal to encompass Carbon et al

Posted on January 25, 2011 by

A recent article in Daily Environment Report states that Standard & Poor’s (S&P) is working on ways to integrate the risks of greenhouse gases into its corporate credit ratings system. This move could be driven by a number of changes in the macro-environment such as tightening of the EU emissions trading scheme in its third phase. This credit rating system might apply to US companies too. S & P could include carbon in their credit rating analysis on a global scale, as early as the H1 of 2011. This could very well mean that companies in carbon-intensive industries and the companies overlooking sustainability could soon face falling credit ratings.

It will be elaborate effort for S&P to develop a methodology that considers company’s direct and indirect emissions and the potential for the company to pass on carbon costs to its consumers. Such a methodology development will be quite complex and methodology will have to go through a rigorous review before being put in place.

S&P could build the carbon focused section of methodology – especially the direct and indirect emissions and associated risks from the Carbon Disclosure Project’s (CDP) questionnaire. which is the only global greenhouse gas reporting system. The CDP is an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world. It collects this information on behalf of large investor houses across the globe.

In September 2010, CDP released the 2010 report on the S&P 500. This report shows that around 70% of the S&P 500 companies responded to the CDP questionnaire, outlining in details the risks and rewards, including their plans to capitalize on commercial opportunities related to climate change. 59% of the companies also disclosed their carbon emissions, at least partially.