New European credit ratings agency claims to be first with ‘double materiality’ focus

The provider says it is aligning with EU sustainable finance regulations including the Taxonomy and upcoming corporate sustainability disclosure requirements

Qivalio, a French credit ratings agency (CRA) and ESG data provider, has acquired Spanish CRA Axesor Rating to create what is claimed to be the first European CRA with an explicit focus on ‘double materiality’. 

Operations of both CRAs will now be brought under the brand EthiFinance, which was previously used to market Qivalio’s range of ESG products including data and ratings, second-party opinion and sustainability consulting services. 

EthiFinance will continue to offer its range of ESG products and advisory services in addition to credit ratings. 

Once its operations are consolidated, EthiFinance’s sustainability and credit ratings will encompass around 2,300 mid-cap European companies, which it claimed to be the widest coverage for the mid-cap market by any sustainability data provider. EthiFinance defines mid-cap as between €150m to €10bn. 

The concept of double materiality, which was introduced by the European Commission and is expected to underpin the new EU corporate disclosure requirements currently in development, expands the consensus that climate and sustainability factors are financially material for a company by acknowledging that the impacts that companies have on society and the environment are also material. 

The EU’s approach contrasts with that of global accounting body the IFRS, which is developing risk-based disclosure standards focused solely on the impact of sustainability factors on enterprise value. 

“The intuition here is ultimately to build better credit ratings which are more effective at predicting future credit events. But now, instead of having only one prism to view the world, we can make use of the comprehensive ESG data which is now available and other tools to do the job properly. This will be at the heart of everything we do going forward,” Ethifinance CEO Elie Hériard Dubreuil told RI. 

According to Dubreuil, the sustainability component of EthiFinance’s credit ratings is based on a proprietary forward looking qualitative methodology which predicts the alignment of companies with the EU Taxonomy. The provider has already approached a number of selected investors to gauge interest in the product and to further refine its underlying model. 

EthiFinance’s ratings methodology is in its early stages of development and will not be made public for now, said Dubreuil. 

Commenting on a push by regulators to strengthen oversight for the ESG ratings and data sector, Dubreuil said: “We believe that ESG is increasingly influential for capital allocation, so it is only natural that it becomes regulated. My personal point of view is that those who fight regulation are wasting their time.”