October 19, 2020

Bill Harrington tells the credit rating company Moody’s Investors Service to “to shut down the ever-expanding sideshow of ESG ‘symbols’ that deflect from deficiencies in the company’s core product of credit ratings.” See his Responsible Investor op-ed “Moody’s ESG overhaul won’t have any actual effect on credit ratings…” (October 19).

The critique applies just as equally to the three other large credit rating companies DBRS Morningstar, Fitch Ratings, and S&P Global Ratings. However, Moody’s is in the cross-hairs owing to its request for feedback “General Principles for Assessing Environmental, Social and Governance Risks: Proposed Methodology Update.” The company accepted comments through October 22. Bill filed a response to Moody’s comment request that honed in on many of the proposal’s problems. In biggest picture terms, “Moody’s should extend the comment period by several months rather than close it on “October 22, 2020” because the “proposal is extremely counter-intuitive, and many if not most interested parties [on an explanatory webinar] get it 100% backwards.”

Bill’s response also notes that “Fixed-income practitioners, financial regulators, ESG advocates and allies, and regular people require more education on the centrality of credit rating methodologies to the operations of a credit rating company.” For this reason, Bill offers in his Responsible Investor op-ed to share “insights from my 20 years’ experience of co-authoring Moody’s methodologies for complex finance and reviewing Moody’s and competitors’ methodologies for all sectors” with those who wish to submit their own comments to Moody’s, or to any other credit rating company.

Bill’s response to Moody’s also makes the following, more technical critiques.

1. Moody’s proposes to quickly implement its new scheme for sovereigns, which given the centrality of sovereign credit ratings to all other credit ratings, will cement deficient assessment of ESG credit exposures in all sectors.

2. Moody’s bases long-term credit ratings on short-term analysis of credit exposures to ESG exposures.

3. Moody’s treats regulation of all kind — environmental, financial, governance, etc. — as a zero-sum cost to issuers rather than a trade-off that also delivers benefits to a range of entities such as government at all levels.