ESG ratings methodology: Bank of Russia’s consultation paper
ESG ratings should be clear, transparent and comparable. According to the regulator, this will help improve the efficiency of the sustainable finance market. To this end, the Bank of Russia proposes to introduce a uniform definition of an ESG rating, identify a minimum set of rating factors, and adopt a single rating scale.
Sustainability ratings become more relevant as the demand for them from ESG investors grows. Now that there is no single interpretation of what the ESG rating means or what it is supposed to reflect, it is impossible to compare the ESG ratings of various credit rating agencies.
The Bank of Russia suggests using two rating models. The first one is the current ESG rating. It is a sustainability profile of a company, an opinion on the qualitative and quantitative aspects of its ESG performance. The regulator finds it essential to implement three separate rating products for each component — E (environmental), S (social) and G (governance) — with a minimum basic set of disclosures under the earlier issued recommendations on non-financial reporting.
The second model reflects an opinion on a company’s sustainability risk management and exposure at a one-year horizon. It will cover the E component only.
To apply the single rating scale, it is proposed to adjust credit rating symbols, e.g. to use popular rating categories from ESG-C (bottom level) to ESG-AAA (top level).
Please send your answers to the questions raised in this consultation paper as well as your feedback before 17 February 2023.