ESG round-up: Real world impact of ESG rating changes limited, study finds

The latest developments in sustainable finance: Bloomberg hits out at anti-ESG republicans, private equity climate body launches APAC wing.

The environmental and social practices of rated companies do not react to ESG rating upgrades or downgrades, and the holdings of dedicated ESG funds only gradually respond to ratings changes, according to a working paper by three academics from MIT Sloan. Florian Heeb, Florian Berg and Julian Kölbel analysed the impact of MSCI rating changes on company behaviour and fund holdings. They found that ownership of a company in ESG funds was 13.1 percent lower two years after a downgrade, while it was 17.1 percent higher for an upgrade, although the response to changes is “slow and gradual”. On the company side, the researchers found that ESG ratings had “no discernible effect” on capital expenditure over a two-year period, or on environmental and social practices. However, firms do improve their governance practices following a downgrade, while upgraded firms “tend to let their governance practices deteriorate”.

Mike Bloomberg has become the latest figure in the financial world to speak out against anti-ESG Republicans, calling their war on ESG “a terrible economic mistake” and “a political loser”. In a column in Bloomberg, the firm’s founder said: “Anti-ESG crusaders position themselves as defenders of the free market. But they are attempting to use government to block private firms from acting in the best interests of their clients.” In doing so, “they are turning the most basic investment rules on their head”.

Private equity climate group Initiative Climat International has launched its APAC chapter, to be chaired by Jie Gong, partner at $87.7 billion private investor Pantheon. Among the 206-member initiative’s APAC participants are KKR’s Asia wing, the $14 billion Affinity Equity Partners and $5.8 billion Pacific Equity Partners.

Japan has seen two innovative bond issuances this week. Mizuho raised €800 million from what it claims is the largest euro-denominated green bond from a Japanese financial institution, while Mitsubishi Heavy Industries is looking to raise ¥10 billion (€70.8 million; $70.6 million) from an inaugural transition bond. Despite the format failing to take off in Europe and the US, Japan and China have both instituted transition finance programmes and all but one of the 23 transition bonds issued in the first half of this year came from the two countries.

The Thai Bankers’ Association has issued an “ESG declaration”, which commits its members to six ESG principles. These include incorporating ESG into risk management, ensuring management accountability for ESG, and disclosing in line with global sustainability standards.

Just over half of FTSE 100 companies now have a board-level ESG committee, according to new analysis from Mattison Public Relations. Of the UK’s 100 largest firms, 54 have established an ESG committee, including every company in the mining and oil and gas sectors. The worst-performing sectors are industrials, where just one of seven firms has a committee, and non-bank financial services, where only two of 15 have one.