November 03, 2022

Toomey Blasts ESG Ratings Firms for Stonewalling Inquiry

Calls on Firms to Preserve All Documents and Communications Regarding Banking GOP Info Request

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) is once again pressing ratings firms to disclose information regarding their practices on calculating companies’ environmental, social, and governance (ESG) scores.

On September 20, Ranking Member Toomey sent letters to twelve ratings firms requesting information about how they calculate companies’ ESG scores. To date, six of the twelve firms (Arabesque S-Ray, Carbon Disclosure Project, FactSet, ISS, RepRisk, and Sustainalytics) have either ignored the letters or have provided incomplete responses. This week, Ranking Member Toomey sent follow up letters asking the firms to preserve all documents, communications, and other information—including electronic information and metadata—potentially responsive to the September request.

“Given the above concerns and increased bipartisan interest in conducting oversight of the ESG industry, it is crucial that your firm provide the information I requested on September 20. In addition, please preserve all documents, communications, and other information, including electronic information and metadata, that is or may be potentially responsive to my September 20 information request.”

These documents will be critical for members of Congress to continue investigating ESG ratings firms’ scoring and data collection practices come January.

As the Senator explains in his letters, the use of ESG factors in capital allocation has raised bipartisan concerns among Congress and regulators alike. The Securities and Exchange Commission, for example, recently released a proposal to address greenwashing.

“[ESG ratings firms] play a key role in the sustainable finance industry by providing third-party data and ratings on companies to investors. However, legitimate bipartisan concerns have also been raised regarding the veracity of third-party data, the opacity of rating methodologies, the processes by which ratings firms engage with rated entities, and the management of conflicts of interest.”

In his original request, Ranking Member Toomey asked the firms to share any non-proprietary methodologies used to assign ESG ratings, including: the specific E, S, and G factors measured and how those factors are weighed; how the firms determine the scope of industry sectors, including whether they employ analysts with sector-specific expertise; and reports intended to capture controversies faced by a company, such as pending litigation, negative press coverage, or shareholder resolutions.

The Senator also asked the firms to answer a number of questions, including: whether companies have an opportunity to submit clarifying comments to their ratings for the benefit of investors; how the firms determine the credibility of the data sources used; how the firms approach ratings with respect to hot button political issues, including abortion and gun control; and how the firms deal with potential conflicts of interest, in cases where the firms also issue proxy vote recommendations or offer advisory services.

To read Ranking Member Toomey’s full letters to the ratings firms, click here.