Generating momentum
For setting its sights on the big league and putting the architecture in place to execute its corporate strategy of becoming a major player in sustainable information, S&P Global is IFR’s ESG Opinion Provider of the Year.
Winning a larger share of a smaller market is no mean feat. Despite the first ever dip in ESG issuance in 2022, S&P Global built its ESG information business with acquisitions and launched a range of new products in a challenging market.
S&P managed to create upward momentum and a platform to challenge industry leader Sustainalytics and parent Morningstar, and ISS ESG, which is owned by Institutional Shareholder Services.
The acquisition of Norwegian research institution Cicero’s prestigious Shades of Green business in December puts S&P in a position to challenge these heavyweight incumbents for a bigger piece of the influential ESG opinions business, which increasingly drives investment decisions.
“We’ve definitely grown our presence in the market,” said Lynn Maxwell, head of EMEA commercial at S&P Global Ratings. “We’ve invested in our people and products and in providing research and transparency to the market. We’ve really ramped it up by providing more and more this year.”
Buying Shades of Green was one of several strategic plays that S&P made to grow as regulation looms for the ESG ratings industry, which was the key driver of Cicero’s decision to sell.
S&P is already regulated by the European Securities and Markets Authority. While its sustainability business is not yet regulated, it is already being run as if it is, with a clear separation of the commercial and analytical functions to avoid potential conflicts of interest.
“We think we’re uniquely placed for future regulation,” Maxwell said.
S&P completed its US$140bn merger with IHS Markit in late February, which created an information services powerhouse and is bringing the broader group’s sustainability products together using its Global Sustainable1 unit.
The firm is continuing to invest in Global Sustainable1, which bought climate risk analysis specialist The Climate Service in January, while Shades of Green was folded into S&P Global Ratings and was the unit’s first acquisition in 15 years.
The main effort and focus in 2022 was growing the lucrative second-party opinion business, which was set up in 2017. Expansion was driven by high-quality analysis and investing in S&P's 70 sustainability analysts, including 10 from Shades of Green.
S&P says it can turn around SPOs in 10 days for use-of-proceeds deals and 15 days for sustainability-linked transactions if issuers have the necessary documentation.
As the market-wide crackdown on greenwashing claims increases the need for external verification, business is booming. “We’re definitely seeing the increase in demand for second-party opinions,” Maxwell said.
To play a bigger role in the market, S&P Global had to cover all types of sustainable finance and launched sustainability-linked bond SPOs and product analysis and an EU Taxonomy alignment service in 2022.
This was complemented by supplementary analysis, including a physical climate risk product that assesses the impact of climate change on countries’ GDP, and more than 30 materiality maps for different sectors, which highlight the most relevant ESG issues for each industry.
S&P evaluated more than US$88.8bn of deals in 2022 and completed more than 70 SPOs and 12 complementary transaction evaluations for green transactions that allow issuers to assess the greenness and impact of their deals before issuance.
“Investors are becoming a lot more discerning and want to find something that differentiates the SPOs that they’re looking at. They want more information and want to dig into the SPOs,” said Adam Ashcroft, a sales director in ESG and sustainable finance.
The SPOs were largely bond-oriented with a good geographic and asset class spread across corporates, infrastructure, financial institutions and project and structured finance.
Notable SPOs include sustainability-linked bond frameworks for German agribusiness Suedzucker and US agricultural machinery manufacturer John Deere, a green financing framework for Warren Buffett’s Berkshire Hathaway Energy, and a social bond framework for New York City.
The Middle East was also a focus, with SPOs on Al Rajhi Bank’s sustainable finance framework and a sustainable finance framework for Jordan’s Arab Bank.
S&P also provided transaction evaluations including for sustainable real estate financier Nuveen Green Capital and for Bazalgette Finance, the funding arm of Tideway, which is responsible for delivering the Thames Tideway Tunnel, London's "super sewer" project.
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