SUSTAINABILITY RATING AGENCIES VS CREDIT RATING AGENCIES the battle to serve the mainstream... investor

This book details the difference between the two rating industries, but this difference is converging all the time. The concept of investing in a more responsible and sustainable manner is drawing in some of the world's leading investors and, with it, regulations and policies are developing at the highest levels. However, the market is not getting what it needs to fully submit to the concept of responsible investing. It has called for more to be done from those tasked with injecting information into their processes, and two industries in particular have been identified as being natural partners. It has been suggested that they are on a collision course to serve the mainstream investor, and in this book, that collision course is contextualised, explained, presented, and finally its outcome predicted. Daniel Cash is Lecturer at Aston University. He has published exclusively on the credit rating sector and has authored a number of books, edited collections, and articles on the subject Contents 6 1 Introduction 8 2 The ‘Mainstreaming’ of Responsible Investment 12 2.1 Definitional Complexity and the Origins of the Movement 13 2.2 ‘Mainstreamisation’ and ESG Integration 22 2.3 Constraints on a Concept 28 2.4 The Reality of an Ideal 32 3 The Sustainability Rating Industry 39 3.1 The Development of the Corporate Sustainability System Industry: A ‘Chaotic Universe’ 41 3.1.1 CDP Climate, Water, and Forest Scores 44 3.1.2 RobecoSAM 45 3.1.3 Sustainalytics 45 3.1.4 MSCI ESG Ratings 45 3.1.5 Bloomberg (ESG Scores) 46 3.1.6 ISS-Oekom 46 3.1.7 FTSE Russell ESG Ratings 47 3.1.8 EcoVadis 47 3.1.9 Thomson Reuters ESG Scores 48 3.1.10 Vigeo-Eiris 48 3.1.11 Standard Ethics 49 3.2 Methodologies in Focus 49 3.2.1 Sustainalytics 50 3.2.2 MSCI ESG Scores 52 3.3 Problems Affecting the CSS Universe 56 4 The Credit Rating Agencies 64 4.1 The Credit Rating Picture 65 4.1.1 The Trajectory of a Binding Relationship 66 4.2 The Credit Rating Agencies and ESG 74 4.2.1 The Principles for Responsible Investment 76 4.2.2 S&P’s Reaction to the Investor Base 82 4.2.3 Moody’s Reaction to the Investor Base 84 4.2.4 Fitch Ratings’ Reaction to the Investor Base 86 4.3 The Credit Rating Agencies Continue to Move Forward 88 5 ‘An Undercurrent of Need’: Understanding the Dynamics of the Responsible Rating Relationship 94 5.1 Institutional Investor Supremacy 95 5.2 The Need for Standardisationn 100 5.3 Signalling 102 5.4 The Relevance of the Natural Oligopoly 108 6 Who Will Triumph? 116 6.1 Standard Setting at the Global Level 117 6.2 The U.S. Experience 121 6.3 The European Experience 127 6.4 ‘To the Victor Go the Spoils’ 135 6.4.1 One Last Attempt at Standardisation? 135 6.4.2 What the Sustainability Environment Means for the CSS and Credit Rating Industries 139 7 Conclusion 147 Index 150