S&P to Add Carbon to Credit Rating Analysis for 2011?

Could carbon-intensive industries and businesses overlooking sustainability soon see their credit ratings fall as a result?   Perhaps. According to an article in yesterday’s Daily Environment Report, Standard & Poor’s (S&P) is working on ways to integrate the risks of greenhouse gases into its corporate credit ratings system. The move seems to be driven by factors such as tightening of the EU emissions trading scheme in its third phase, beginning in 2012, but might apply to US companies as well.  The article reports that S&P could include carbon in their credit rating analysis on a global scale, as early as the first half of 2011. 

As the article highlights, developing a methodology to consider emissions directly generated by a company, those indirectly associated with its activities (such as use of electricity, supply chain and employee travel), and the potential for carbon costs to passed through to consumers would be “fiendishly complex,” and the methodology that S&P adopts will have to go through a rigorous review before being put in place. 

One possible option to build from is the Carbon Disclosure Project’s (CDP) questionnaire, which is the only global greenhouse gas reporting system. In September, CDP released its 2010 report on the S&P 500 (as well as reports on many other groupings of the 4,700 companies they ask to complete their questionnaire). That report shows that in 2010, some 70% of the S&P 500 companies responded to the CDP questionnaire, detailing risks and rewards, such as how they plan to capitalize on commercial opportunities related to climate change, and 59% also disclosed their carbon emissions, at least in part.  The CDP reports also show, however, that these US companies are still behind their global peers.

 

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